Domestic Asset Protection Trusts, also known as APTs, are irrevocable trusts that are designed to provide you with a level of protection against the claims of future, unknown creditors or lawsuits. This term, unfortunately, is widely misunderstood by business owners throughout Illinois. Domestic asset protection in Illinois is much more complex. Because Illinois does not have APT laws, a company must incorporate in a state that allows the use of an APT.
Before you can learn the logistics of where and how you incorporate in a non-tax jurisdiction, you must first understand what an APT is and whether or not it is right for your business.
Do You Need Domestic Asset Protection?
Not all businesses need domestic asset protection. Instead, it is recommended for professionals with high litigation risks. That can include engineers, physicians, lawyers, accountants, entrepreneurs, and those who serve as officers or on a board of directors - charitable organizations included. If you are already involved in litigation, setting up any form of domestic asset protection is not recommended.
Benefits of Domestic Asset Protection
Creating a domestic APT allows you to place your company assets in an irrevocable trust. This trust keeps funds beyond the reach of any creditor or court, while still giving you some power over those funds. There are limitations to these trusts and you cannot use them for fraudulent transactions. Also, it is important to keep in mind that while your APT protects you from lawsuits and creditors, your assets in an APT are not protected from tort injuries, alimony and child support that occurred prior to the date the trust was formed.
Setting Up Your Trust: Choosing Your State
To create an APT, you will need to meet with an attorney who specializes in domestic asset protection in Illinois. Your attorney will assist you with establishing your trust in a state that allows APTs. Your trust must be irrevocable and should appoint at least one trustee (someone who is a resident within the APT jurisdiction).
What About Taxes?
Domestic asset protection lawyers can set up your APT for income, estate and gift taxes too. For example, you can set up the trust so that it is established with no gift taxes in the future. The tax structure of your trust ultimately depends on your goals - how you want to access and use those funds in the future.