Asset Protection Trusts – Popularity Rising
“Asset protection trusts” are the general term for any trust arrangement intended to shield assets from unwanted and unexpected claims. Using trusts to protect assets dates back to the very inception of the trust. In the UK Crusaders were early users of asset protection trusts to protect their lands while they were away, often for many years before there was any codified law or case precedent relating to how a trust arrangement is viewed by the courts. Your can access our general booklet on Asset Protection Trusts here. This page is of fairly general background interest..
Crusaders would put legal ownership of their estates with their friends and trusted companions as “trustees“. The need for proper rules to be created by the Courts arose when the crusaders would unexpectedly return from the campaign and the trustee had mismanaged the asset protection trust – or even taken it as belonging to them. The Courts would then be asked to rule on the inevitable disputes. Based upon the rulings of the chancellor, (whose role later became that of the court of equity), the law of trusts was standardised so that everyone knew what the rules were and crusaders could be sure of getting their lands back when they returned.
So the early uses of asset protection trusts was for the protection of assets the estates of the crusaders. The asset or estate in this case was simply placed into the trusteeship of a friend to keep it safe.
Todays’ extensive trust industry continues to work as an sound asset protection trusts arrangement.
The scope of asset protection which can be afforded by a modern day asset protection trusts is wide. It works to sever the legal connection between the grantor (creator) of the trust, and the actual asset.
As most trusts are irrevocable (but ours don’t need to be) from moment of placing the asset into trust no legal claim made against the original grantor can attach to any of the assets previously owned by him. However, if the trust is clearly created for the purpose of defrauding a creditor, the courts may well choose to ignore it. So trusts should be created at the earliest possible moment, not left until the problem already exists. This rule applies equally to claims made by ex business partners, ex spouses, or HMRC collection officers.
Where the trust is correctly created in timely fashion, there is rarely a basis at law in which a claim can be made against any property now in the trust, but formerly owned by the grantor.
To use an asset protection trust in your financial and legal affairs, consider a number of aspects:
- The purpose of the trust.
- Whose interests will the trust serve?
- The value and type of the assets to be put in trust;
- The initial and on-going costs of maintaining the trust;
- Who the trustees are to be.
- Your relationship to the beneficiaries of the trust.
Of vital importance is how the trust will work to fulfil the its’ aims, and your intentions. While effective control of the assets is wielded by the trustees, they must also honour the terms of the original trust deed to fulfil the initial wishes and intentions of the grantor. Most trusts will also have a letter of wish to guide the trustees in decision making.
With a well made trust, the wishes of the grantor will be effectively worded, and a wide range of beneficiaries can continue to benefit from the trust – for up to 125 years! The existence of a pool of assets available for investment can also create opportunity for the grantor as well as the beneficiaries. A great example would be a trust loaning the deposit on a first home to generation after generation of your family.
Contact us for a discussion on how trusts might benefit you and yours on 0800 298 5208.