What is a Lifetime Asset Protection Trust?
A lifetime asset protection trust (LAPT) is a type of irrevocable trust that is used as an estate planning tool to protect assets from potential creditors while allowing the grantor (the person who establishes the trust) to retain some control over the assets during their lifetime.
With an LAPT, the grantor transfers their assets into the trust and designates a trustee to manage the trust assets. The grantor can retain certain rights, such as the right to receive income from the trust, the right to use certain assets, and the right to change the beneficiaries or trustees of the trust. However, the grantor cannot control the trust assets directly and is protected from creditors who may try to go after their assets.
The LAPT can be structured in different ways, depending on the grantor’s needs and goals. For example, the trust can be set up as a “spendthrift” trust, which limits the beneficiaries’ ability to access the trust assets directly, and thus provides additional protection against potential creditors.
How to set up and operate a successful LAPT:
A lifetime asset protection trust (LAPT) is a legal instrument that can be used to protect your assets from potential creditors while allowing you to retain some control over the assets during your lifetime. Here are some general steps to consider when setting up and using an LAPT:
- Determine if an LAPT is right for you: Before setting up an LAPT, it’s important to understand the potential benefits and drawbacks of this type of trust. An LAPT can provide valuable protection for your assets, but it may also have tax and other legal implications that should be carefully considered. It’s important to consult with an experienced estate planning attorney to determine whether an LAPT is appropriate for your specific needs and goals.
- Choose an independent trustee: The trustee is responsible for managing the LAPT assets and distributing income and principal according to the terms of the trust. The trustee must be independent (which means uninterested or subordinated to the beneficiaries) under the tax law and bankruptcy law.
- Transfer assets to the LAPT: Once the trust is established, you can transfer assets to the trust. This typically involves executing a transfer document or deed and recording it with the appropriate government agency.
- Specify the terms of the trust: The terms of the LAPT should be carefully crafted to meet your goals and objectives. You can specify the beneficiaries of the trust, the conditions under which distributions may be made, and any other special provisions that you want to include.
- Retain some control over the trust assets: With an LAPT, you can retain certain rights, such as the right to receive income from the trust, the right to use certain assets, and the right to change the beneficiaries or trustees of the trust. However, the grantor cannot control the trust assets directly and is protected from creditors who may try to go after their assets.
- Follow the rules for managing the LAPT: A LAPT must be managed according to certain legal requirements, such as filing tax returns and complying with state and federal trust laws. It’s important to work closely with your attorney and trustee to ensure that the trust is structured and administered properly.
It’s important to note that an LAPT is a complex legal instrument, and it’s important to consult with an experienced estate planning attorney to determine whether it’s appropriate for your specific needs and goals. An attorney can help you design and structure the trust in a way that is consistent with your estate planning goals and is compliant with the laws in your state. Additionally, establishing an LAPT may have tax and other legal implications that should be carefully considered before making any decisions.