Do you have a foreign asset protection trust (FAPT)? Has it been established for more than 10 years? Are you interested in ways you can save on the costs of maintaining your FAPT? You may now bring your trust home to a qualifying state and still maintain the firewall protections your FAPT provided.
In recent years many FAPTs that have reached their 10-year anniversary are being migrated back to the United States. Why is the 10-year period so critical? Under a federal law pertaining to bankruptcy proceedings, the U.S. bankruptcy trustee is allowed to challenge transfers to a domestic asset protection trust or other similar devices for up to 10 years from the date assets were transferred to the trust. Once the 10-year term has expired, the trust is no longer at risk of being challenged as a fraudulent transfer in a bankruptcy proceeding.
The long statutory period to challenge transfers to asset protection trusts caused many people to establish these trusts in an overseas country where Federal Bankruptcy Code Section 548 would not apply.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The benefits of bringing a trust home
Once the statute of limitations under Section 548 has expired, a creditor is no longer able to pursue the assets held in the trust. This is great news, considering the FAPT can now return home! The many benefits of converting the FAPT to a domestic trust include:
- lower administration fees
- more flexibility in banking and investment custodians
- convenience
- less IRS tax compliance, i.e., less costs to maintain the trust
A real-life story
Here is a client example: Dr. Veronica G. developed a specific medical procedure to fix an ongoing condition and for several years she had successfully helped more than 75 patients overcome their medical issue. One day while watching the news, Dr. G. saw a commercial in which a law firm advertised that it would sue doctors who injured patients who had the procedure performed and who may have sustained injuries.
Dr. G. began to realize that although this procedure was successful, there could be some larger liability than her malpractice policy would cover. This prompted her to consult with a lawyer who specialized in comprehensive estate planning with asset protection and resulted in her establishing foreign asset protection trusts.
Dr. G.’s trust is now more than 10 years old, and after meeting with her attorney, she decided to redomicile her trust to Nevada, a state that year after year ranks in the top five of asset protection trust states. This strategy will maintain the protections of the trust while reducing Dr. G’s overall costs to maintain the trust. She won’t be required to file the IRS tax compliance forms required for trusts established overseas, and her choice of banks and brokerage firms will increase significantly, because many U.S. banks and brokerage firms will not open accountants under a FAPT.
Overall, the key concept is that if your FAPT is now more than 10 years old, you may now bring it back to the U.S. and still maintain the protections of the trust.
-
I'm a Financial Planner: Here's How to Make the Most of Your Charitable Giving on a BudgetMaximizing the charitable donations you plan to make this year can help your financial plan stay on track and help give the most to the causes you care about.
-
I'm a Wealth Planner: These 3 Steps Can See You and Your Heirs Through a Wealth TransferBoth givers and receivers need to be seriously strategic about communicating, understanding tax efficiency and leveraging smart money moves.
-
Unwrapping Your Estate Plan for Your Kids: A Gift That'll Keep Giving Long After the HolidaysThe holidays offer families a perfect opportunity to discuss important, often difficult topics like long-term care, estate plans and legacy.
-
5 Ways to Teach Your Kids About Giving Back, From a Financial PlannerTeaching kids generosity goes beyond simple rules and can involve fun, practical strategies, such as letting them lead giving, volunteering together and more.
-
I'm a Financial Planner: Here's How You Can Use AI to Improve Your FinancesApps can help with budgeting, saving and investing, financial coaching and debt management. But providing your personal information can also raise your risks.
-
When Checkout Charity Gets Uncomfortable — and Maybe Even IllegalCashiers asking customers to 'round up' their total for charity can cross an ethical line if there's no disclosure about the benefiting organization.
-
Four Ways to Find Free Money to Pay for College: Affluent Families Can Apply, TooFamilies can access scholarships, grants and incentives by strategically positioning their students in terms of merit, skills and timing.
-
3 Tax-Smart DAF Strategies Advisers Can Put to Work for Clients During Giving SeasonDonor-advised funds can help clients maximize their philanthropy through front-loading deductions, donating appreciated assets and 'bunching' contributions.
