Asset Protection Trust Definition

Learn more about what an asset protection trust is in business.

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asset protection trust definition

An asset protection trust is a unique type of trust that protects your assets and your estate from creditors. These trusts are complicated and subject to regulations, but if done properly, asset protection trusts can offer significant benefits. 

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What is an asset protection trust?

The definition of an asset protection trust (APT) is that it’s a tool used to shield assets from creditors, lawsuits, or claims made against your estate. To create an APT, you (the settlor or grantor) write the terms of the trust, appoint a trustee and beneficiary, and transfer property and assets to the trust. To effectively protect your assets, the trust must be irrevocable. This means you can’t amend or revoke the trust once you set it up unless the trustee approves. You also don’t have control over the assets once they’re transferred to the trust. Rather, the trustee manages the trust assets and only makes distributions according to the trust terms. 

The effect of an APT is that any assets you put into the trust are no longer considered yours. If a creditor files a claim against you and wins, the trust assets are untouchable and can’t be used to satisfy the judgment. 

It’s important to note that not all states legally recognize APTs, but you can set up a trust in a state that does. 

Asset Protection Trust Examples

The two basic types of APTs are domestic and foreign. 

Domestic APT

Domestic APTs are trusts created in the U.S. within a state that permits APTs. A domestic APT is attractive because it’s easier and less expensive to establish than a foreign APT. However, domestic APTs are relatively new, so their asset protection isn’t as certain when comparing it to a foreign APT. 

Foreign APT

A foreign (or offshore) APT is a trust established outside of the U.S. In general, they’re more expensive to set up than domestic APTs, but they have stricter privacy protections and can offer tax advantages. 

What are some asset protection trust advantages?

The biggest advantage that an APT offers is the protection against lawsuits and creditors. For a business owner, having an APT in place may be incredibly beneficial. This powerful tool can safeguard your assets from a personal injury claim or creditor lawsuit if you default on a business loan. APTs are also relatively simple to set up. 

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What are some asset protection trust disadvantages?

As we mentioned above, APTs are irrevocable. It’s incredibly difficult to alter them, so be sure to thoroughly discuss this asset protection strategy with a financial or legal advisor. APTs also aren’t available in every state and can be expensive to create, particularly if you’re setting up a foreign one. 


To recap the asset protection trust definition, it’s a special estate planning tool you can use to safeguard your property and assets by keeping them out of a creditor’s reach. They are complex and need to be properly created to be effective. 

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Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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