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.
Sign up for Kiplinger’s Free E-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.
-
What Wall Street's CEOs Are Saying About Trump's TariffsWe're in the thick of earnings season and corporate America has plenty to say about the Trump administration's trade policy.
-
The Role of the U.S. Dollar in Retirement: Is It Secure?Protect your retirement from de-dollarization, because “capital always goes where it is treated best."
-
To Stay on Track for Retirement, Consider Doing ThisWriting down your retirement and income plan in an investment policy statement can help you resist letting a bear market upend your retirement.
-
How to Make Changing Interest Rates Work for Your RetirementHigher (or lower) rates can be painful in some ways and helpful in others. The key is being prepared to take advantage of the situation.
-
Within Five Years of Retirement? Five Things to Do NowIf you're retiring in the next five years, your to-do list should contain some financial planning and, according to current retirees, a few life goals, too.
-
The Home Stretch: Seven Essential Steps for Pre-RetireesThe decade before retirement is the home stretch in the race to quit work — but there are crucial financial decisions to make before you reach the finish line.
-
Three Options for Retirees With Concentrated Stock PositionsIf a significant chunk of your portfolio is tied up in a single stock, you'll need to make sure it won't disrupt your retirement and legacy goals. Here's how.
-
Four Reasons It May Be Time to Shop for New InsuranceYou may be unhappy with your insurance for any number of reasons, so once you've decided to shop, what is appropriate (or inappropriate) timing?
-
Before You Invest Like a Politician, Consider This DilemmaAs apps that track congressional stock trading become more popular, investors need to take into consideration some caveats.
-
How to Put Together Your Personal Net Worth StatementNow that tax season is over for most of us, it's the perfect time to organize your assets and liabilities to assess your financial wellness.
