How Much Does An Asset Protection Trust Cost?

An asset protection trust (APT) is one of the most effective tools to protect your assets from creditors, lawsuits, divorces, and other dangers. An APT is a special type of irrevocable trust which allows you to legally relinquish ownership of the assets you transfer into it, while still retaining the benefits and practical day-to-day control. 

Being the ultimate tool for asset protection, APTs also come with a steep price tag. This can differ quite drastically depending on whether you choose to establish a foreign asset protection trust (FAPT) or a domestic asset protection trust (DAPT), as well as due to numerous other factors. 

In this article, we will provide a realistic idea of how much an asset protection trust costs and whether it is worth the price tag. 

Key Takeaways

• An asset protection trust helps shield assets from creditors and lawsuits.
• Fees include initial setup fee and an annual maintenance fee

What Is the Cost of an Asset Protection Trust?

Before we go into the finer details, let’s get a rough idea of just how much an asset protection trust can cost. 

The cost of an Asset Protection Trust can range anywhere from $2,000 to $30,000 depending on whether its a domestic trust or offshore trust. There are also annual maintenance costs which include administration and asset management fees which can come to $1,000 - $5,000 per year. 

Trying to put an exact benchmark figure on the cost of an APT is simply not possible with that kind of range of price. It should also be clear that an asset protection trust is not cheap. So, you should consider carefully whether you really do need an APT and if the benefits you will get from it will outweigh the high monetary cost. 

What are the Advantages?

When it comes to asset protection trust, the most important distinction is between Foreign and Domestic APTs (FAPTs vs DAPTs), which is also the primary factor driving cost difference.

A Foreign asset protection trust is any asset protection trust formed in an offshore jurisdiction that is different to the one in which the grantor (creator) of the trust resides. A Domestic asset protection trust is an APT that is formed in the same country in which the grantor resides. 

The cost of setting up and maintaining a FAPT is much higher than a DAPT, but it comes with some significant advantages:

• Stronger asset protection: an APT in the right offshore jurisdiction (e.g., Cook Islands, Cayman Islands, Nevis, etc.) provides much stronger asset protection than a domestic trust. There is an added layer of protection as the assets are kept in a completely different legal jurisdiction. Furthermore, these countries have stronger asset protection laws for trusts compared to the U.S. 
• Added privacy: keeping your assets in a foreign trust naturally ensures that they are more private from local records, courts, and the public. Offshore jurisdictions like Cook Islands maintain strict privacy over the parties involved in an APT, and typically the names of the parties involved do not even need to be registered in any public record. 
• Tax benefits: FAPTs are most commonly formed in tax havens like Cook Islands and Nevis, which can lead to substantial tax savings when used as part of an integrated tax management structure. All asset protection trusts can provide a reduction in taxes as they avoid probate procedures and bypass estate taxes, but an offshore APT can lead to much greater tax efficiency than a DAPT, especially for the grantor of the trust.  These additional tax savings can more than make up the difference in cost of a FAPT if you are dealing with a large enough estate.

 

Cost Difference between a Domestic Asset Protection Trust and a Foreign Asset Protection Trust

There are clearly good reasons to choose a FAPT over a DAPT, but just how much of a cost difference are we dealing with?

The total cost to set up a domestic asset protection trust typically lies in the range of $2,000 - $10,000.

The exact cost depends on several additional factors such as the state in which you decide to set up the trust, which will in turn determine the standard legal fees charged. The level of expertise of the attorney you choose will also have an impact. Some will charge a flat rate for setting up the trust while others will charge an hourly rate. 

In addition to the initial setup costs, there are usually some ongoing fees to maintain the trust. These include trustee fees for hiring professional third-party trustee services, which is needed if you opt to form the trust in another state or country. Then you will need to pay the legal fees for maintaining the trust.

Some will have standard annual maintenance fees while others will just charge an hourly rate for any additional work required in future after the trust has been created. All this adds up and can easily come to about $1,000 - $3,000 per year.  

The total cost to set up a foreign asset protection trust typically lies in the range of $5,000 - $30,000. Offshore trusts are much more expensive than DAPTs for a few reasons:

• They are more complex instruments and so require more time and expertise to set up. 
• They involve other parties in foreign countries which results in additional layers of fees.
• The legal professional you hire will need to have expertise both in US trust and compliance laws, as well in the foreign jurisdiction in which the trust is formed. Such an attorney does not come cheap.

You will also have to pay annual compliance and maintenance fees for your FAPT, which can easily come to $2,000 - $5,000 per year. One of the main reasons for such high maintenance costs is the compliance standards imposed by the local US authorities. It is common for big corporations and wealthy individuals to move their assets offshore to avoid taxes. This has roused suspicion with the federal government and so they have enforced stringent reporting and compliance requirements.

These include annually filing forms 3520 and 3520-A. It is a complex task which involves hours of legal work and therefore high fees. You can aid the process (and in turn reduce the legal costs) by keeping meticulous records of all financial transactions related to your trust.

With all that being said. Since we are a Panama-based law firm, we have the ability to price out our services different compared to a US based law firm. For example, the cost of a Cook Islands Trust is often quoted between $25,000 - $50,000 or more for US based law firms while we can form a trust for $12,000.

We have been forming trusts for over 25 years and have thousands of clients who have been able get offshore protection. Get in touch to see if we are right for you.

Pros and Cons of Domestic vs. Offshore Trusts

Domestic Trusts:

• Pros: Usually less expensive to set up, with costs ranging from $2,000 to $4,000. Easier to manage and monitor due to proximity and familiarity with local laws.
• Cons: Potentially less robust asset protection. Creditors might have an easier time accessing assets compared to offshore trusts.

Offshore Trusts:

• Pros: Offer stronger asset protection due to being in jurisdictions with favorable trust laws. Particularly useful for high-risk professionals and those with significant assets.
• Cons: Higher setup fees, often exceeding $12,000. Ongoing administration and management fees can also be substantial, costing $5,000 to $25,000 or more per year. Complex regulatory requirements and potential tax implications.

Types of Asset Protection Trusts

Domestic Asset Protection Trusts

Domestic asset protection trusts (DAPTs) are set up within the United States. These trusts help individuals shield assets from creditors while still benefiting from the property.

Several states, including Nevada, Delaware, and Alaska, have statutes that support the creation of DAPTs.

In a DAPT, the trust's creator (the grantor) places assets into the trust, and those assets are managed by an independent trustee. The grantor can remain a discretionary beneficiary, meaning they may receive funds from the trust, but creditors cannot access these assets.

Offshore Asset Protection Trusts

Offshore asset protection trusts (OAPTs) are established in foreign jurisdictions with laws favorable for asset protection. Popular locations include the Cayman Islands, Bermuda, and the Cook Islands.

These trusts are typically more expensive to set up and maintain than domestic trusts. Initial costs can range from $20,000 to $50,000, with annual administration fees of $2,000 to $5,000, plus around one percent of the asset value.

Offshore trusts offer higher levels of protection against creditors due to the foreign legal system. However, they require careful consideration of tax implications and compliance with U.S. tax laws.

 

Ultimately, deciding whether to setup an asset protection trust offshore or domestically comes down to your personal circumstances and preferences.

There certainly are reasons to go for a higher-cost FAPT, but for many people, the price difference is simply not worth it given their needs and financial position. Some asset protection attorneys swear by domestic APTs, arguing that they are just as effective as offshore ones, but for a fraction of the price and without the same level of complexity.

It is true that for most ordinary situations, a domestic APT is perfectly sufficient. For those with an extremely high net worth they wish to protect, or with special requirements that cannot be satisfied locally, a FAPT may indeed be warranted. 

Is it Worth the Cost?

Asset protection trusts are one of the most powerful vehicles to protect your hard-earned assets, but are they worth the high cost?

There is really no clear-cut answer to this question, and it comes down to each person’s individual situation. For some high-net-worth individuals, an APT would absolutely be worth the high costs, as it would be a small price to pay to protect their valuable estates. For others, the costs would just be too high over the long run to warrant using such a sophisticated tool.

Even if the cost is worth it, your circumstances may be such that another financial tool would be more effective at protecting your assets. 

The key point here is that not everyone needs an asset protection trust. Furthermore, of those who do need an APT, not everyone needs the highly specialised FAPT, as setting up a trust domestically could be perfectly sufficient. A general rule of thumb is that if you have an estate value of at least $1 million, you should consider setting up an asset protection trust domestically. Those with an estate of at least $5 million should consider going for the more expensive option of a foreign asset protection trust. 

These numbers are very rough guidelines, and it really comes down to your personal preferences and situation. For example, the cost of an APT could be well worth it for those in professions with a higher risk of getting sued (e.g., doctors, lawyers, business owners, architects, etc.), even if they have a net worth below $1 million.

It is always best to consult with an expert asset protection attorney who can help you determine the best way to protect your assets, and advise on whether setting up an asset protection trust is the right step for you to take.