When it comes to safeguarding your wealth, an asset protection trust is one of the strongest tools at your disposal. These trusts are capable of defending your wealth from creditors, lawsuits, and countless other threats.
However, when creating an asset protection trust (APT), you have a wealth of options to choose from, including domestic and offshore versions. If you live in New York, you might even be considering a New York asset protection trust.
In this article, we’ll explain how New York asset protection trusts work and see how they compare to the trusts offered in other jurisdictions:
- What Is a New York Asset Protection Trust?
- How New York Asset Protection Trusts Compare to Other Domestic Options
- Overall Flaws of Domestic Asset Protection Trusts
- Why Offshore Asset Protection Trusts Work Better Than Domestic Alternatives
- New York Asset Protection Trust FAQ
What Is a New York Asset Protection Trust?
A New York asset protection trust is a form of domestic trust that is specifically designed to keep people’s money safe from creditors, lawsuits, divorce, and other threats. To get that protection, a person must create a trust, transfer their assets into it, and then relinquish control of the trust to a trustee. The trustee then manages the trust based on the terms laid out in the trust agreement.
Unfortunately, asset protection trusts in New York are not true APTs. For a trust to be accurately termed as an asset protection trust, it must be both self-settled and irrevocable. Self-settled trusts allow the person who creates them, known as a settlor or grantor, to serve as the beneficiary. Irrevocable trusts cannot be nullified or changed by the settlor without input from other parties, such as the trustee.
How New York Asset Protection Trusts Compare to Other Domestic Options
Though New York doesn’t have a real asset protection trust, other states do. Currently, there are 17 states that offer domestic asset protection trusts (DAPTs), the most notable of which are South Dakota and Nevada. The trusts in these states are self-settled and irrevocable, which creates a significant hurdle for any would-be creditors when they try to take your assets.
The reason a self-settled, irrevocable trust is so difficult for creditors to breach is simple. When a creditor wins a judgment against you, they can take any easily obtainable assets as a way to satisfy said judgment. For example, if someone wins a $100,000 judgment against you and you have $120,000 sitting in a bank account, your creditor can demand that you pay them using your bank account. However, if that $120,000 was in an asset protection trust, the creditor cannot reach it as easily they demand that you take it out, as you have no direct control over that money.
Unfortunately, the above scenario isn’t what would occur if you tried to create an asset protection trust in New York. Instead, you’d find that the trust options available in New York fail to provide any real level of asset protection and leave you exposed to creditor threats.
Overall Flaws of Domestic Asset Protection Trusts
Even the best domestic asset protection trusts aren’t perfect. They all share flaws when compared to the top offshore asset protection trust options, including:
- Subject to the laws of other states – If you establish an asset protection trust in Nevada but get sued in California, all the ironclad laws that you thought would safeguard your wealth no longer matter. The laws of the jurisdiction in which you are sued are what matter most. Each state is required to enforce the rulings of another state’s judge, even if the outcome would have been different if the trial happened within its borders.
- Limited durability – U.S. law is anything but stable. As legal landscapes change and new state administrations come to power, there’s always a risk for asset protection trust laws to weaken or be eliminated, which can put the assets of New York residents in jeopardy.
- Weak case law history – Domestic asset protection trusts are much newer than their offshore counterparts. As a result, the case law that supports DAPTs is weak and has plenty of holes that attorneys can use to win fraudulent transfer claims.
Why Offshore Asset Protection Trusts Work Better Than Domestic Alternatives
Offshore asset protection trusts (OAPTs) are the gold standard of APTs. These trusts are situated in jurisdictions that have strong local laws designed to keep your assets safe from creditors. Here are just a few reasons why OAPTs are stronger than DAPTs:
- Resists U.S. judgments – The primary reason to consider an OAPT is its ability to resist U.S. court orders. If you lose a lawsuit in the United States and your creditor goes to your overseas trustee to ask for money, the trustee’s standard policy is to refuse to hand any assets over. A court order from the U.S. has no power in an offshore jurisdiction with distinct laws and legal sovereignty.
- Strong legal protections – If your creditor tries to prove that you made a fraudulent transfer to an offshore trust, they’re in for a rough ride. The top offshore jurisdictions require a creditor to prove beyond a reasonable doubt that a transfer was made with the express intent to defraud a creditor. This is an exceedingly difficult burden of proof to meet for a financial transfer.
Set Up an Asset Protection Trust in New York With Help From Asset Protection Planners
Ultimately, if you want to establish an asset protection trust in New York, the best thing you can do is set up an OAPT. Offshore asset protection trusts offer the security that you need, and there’s nothing stopping a New York resident from using them.
If you’re ready to start protecting your wealth from lawsuits, creditors, divorce, and dozens of other threats, turn to the team at Asset Protection Planners. We’ve spent decades establishing offshore asset protection trusts and have never had a creditor breach even one.
Don’t rely on ineffective domestic asset protection tools. Contact us for a free consultation to get the best protection available.
New York Asset Protection Trust FAQ
How can I set up an asset protection trust in New York?
To establish an asset protection trust in New York that can actually keep your money safe, you need to look for options outside of the state. New York has too many restrictions on what trusts can be used to protect and does not offer a true asset protection trust.
The lack of choices available in New York requires you to search for domestic or offshore asset protection trusts. Offshore trusts are the more powerful of the two, as they have stronger countermeasures against creditors, lawsuits, divorce, and other threats. Consider hiring an asset protection planner who can help you determine which trust best suits your needs.
After selecting either an offshore or domestic asset protection trust, have your planner assist you with selecting a jurisdiction. Different states and countries have distinct laws that impact the efficacy of your asset protection trust. Once you and your planner choose a jurisdiction, your planner will set up accounts and other financial structures to help improve your asset protection strategy.
Here’s a step-by-step guide detailing how to set up an asset protection trust in New York:
- Explore asset protection trusts outside of New York.
- Call an asset protection planner for help establishing a trust.
- Discuss both offshore and domestic trust options with your planner.
- Decide whether a weaker domestic trust fits your immediate needs or if you require the stronger protections of an offshore asset protection trust.
- Depending on the trust you create, ask your planner which state or offshore jurisdiction best suits your needs.
- Have your planner establish the trust in your preferred jurisdiction.
- Ask your planner for a list of reputable trustees and select your preferred option.
- Get instructions from your planner detailing how to properly fund your trust.
- Have your planner set up an LLC within your asset protection trust so you can control your assets without putting them at risk.
- If you are sued, or believe you will be sued soon, the trustee will assume control of the LLC.
- Once the threat ends, ask your trustee cede control of the LLC back to you.
- Have your planner monitor your chosen jurisdiction’s trust laws to ensure your trust remains compliant with any changes.
