What Types of Assets Can You Put in Trust?

There are several types of trust structures and each of them serves a particular purpose. Many wealthy people use trusts to protect their assets. A family trust (or a living trust) serves asset protection purposes very well.

However, not all types of assets are suitable for a trust. You’d better abstain from putting some asset types in trust. Let’s find out who and why may want to create a trust and how trusts provide asset protection from foreign creditors and courts of law. We will also discuss the asset types that you can (and should) put in trust as well as the asset types that you shouldn’t put in trust.

What is a trust and how does it provide asset protection?

If you would like to create a trust, you have to choose the trust type that fits your goals in the most efficient manner. 

What is a trust? It’s a legal entity created by an agreement between other entities (natural persons and/ or legal entities). Typically, there are three parties to the agreement:

• Beneficiary – the person who benefits from the property kept in trust;
• Trustee – the person who manages the property kept in trust;
• Settlor (Trustor) – the person who creates the trust.

Even though we use the word ‘person’ in the definitions above, a legal entity can fulfill any of the three roles. The process of creating a trust is not overly complicated. At the same time, a trust is an efficient instrument of asset protection and tax burden reduction. This is what you have to do to set up a trust:

• Appoint a Trustee and transfer your personal property to the trust. Now the property does not legally belong to you but to the trust instead. This means that you are no longer taxable on the property. Moreover, no property tax is due when it is transferred to your heirs. An irrevocable trust will serve asset protection purposes better than a revocable trust.
• The Trustee shall manage the property kept in trust in the interests of the beneficiary (or beneficiaries). The scope of the trustee’s authorities is determined by the trust type. If you set up a discretionary trust, the trustee will be able to manage the property kept in trust and distribute the profits that the trust generates at his/ her discretion. The Deed of Trust specifies the scope of the trustee’s authorities.

What is a family trust or a living trust?

A trust is called a living trust (or inter vivos trust in Latin) if it is created during the Settlor’s lifetime. The trust can be revocable or irrevocable, which means that you can keep the power to make alterations to the list of assets kept in trust or you can surrender this power. The difference between revocable and irrevocable trust is crucial. In the first case, the property kept in trust continues to legally belong to you personally. In the second case, the property belongs to the trust for tax purposes.

The Deed of Trust is a legal document that establishes the trust and regulates the management of the assets kept in trust. Besides, the Deed of Trust specifies the trust beneficiaries as well as the rules and conditions of profit distribution. 

Unlike a corporation, a trust is not a taxable entity. A trust cannot be sued. A trust cannot make a contract with another legal entity. The trustee can be sued and he or she can make legal agreements but the trust cannot.

It is possible from the legal point of view to set up a trust where the trust Settlor is simultaneously the trust beneficiary (or one of the trust beneficiaries). You can set up a trust of this sort if you are not planning to make debts that could threaten the integrity of your assets. It is a nice inheritance-planning instrument and it may help you save on taxes a bit. But a trust of this kind is not going to be a good asset protection mechanism.

Why would you want to create a trust?

People use trusts for different purposes and the most widespread of them include the following ones:

• To protect family assets (family trust);
• To ‘devise and bequeath’ property to ones heirs (testamentary trust);
• To protect the anonymity of asset possession (the property is written in the name of the trust, not in the trust settlor’s personal name);
• To reduce property and inheritance taxes (when your heirs inherit your property via a trust, no inheritance tax is due).

These are the most popular reasons for creating a trust but other reasons exist too. 

Should you set up a revocable trust or irrevocable trust?

This is probably the most important distinction between trust types: the trust can be revocable or irrevocable.

• Revocable trust: you can add new assets to the trust or extract assets from the trust without any restrictions. You can also liquidate the trust at any time you wish. For tax purposes, you remain the owner of the property kept in revocable trust.
• Irrevocable trust: you cannot add new assets to the trust nor extract assets from the trust. The list of assets kept in irrevocable trust is fixed. For legal purposes, you are not the owner of the property kept in irrevocable trust: the trust is. This means that if you make personal debts, the assets kept in trust cannot be used towards covering the debts.

As far as tax returns are concerned, some western countries require that irrevocable trusts file separate tax returns. With an irrevocable trust, your personal tax declaration will suffice.

How does a living/ family trust work?

The procedure of setting up a living trust includes the following steps:

1. A Deed of Trust is made (with the help of professional lawyers). The Deed of Trust specifies the following:
   • How the assets kept in trust shall be managed;
   • Who shall inherit the assets kept in trust;
   • Who the Trustee is and who the trust Beneficiaries are;
   • What assets are kept in trust.
2. When the Deed of Trust is made and signed, the Settlor ceases to be the legal owner of the assets put in trust (in case the trust is irrevocable).
3. When the trust Settlor dies, the assets kept in trust are not affected in any way. The assets continue to be managed in accordance with the trust deed and the trust beneficiaries continue to enjoy all the benefits that the trust brings. If the asset possessor leaves his/ her property to the heirs via a Will rather than a Trust, tax consequences will arise in many cases.

If the deceased trust settlor leaves personal debts behind, the creditors will have to write them off. The late person’s assets kept in trust are beyond their reach. This is only a schematic description of the trust creation process. In each particular case there will be small details to account for. For this reason, we recommend that you should use professional advice if you would like to set up a trust.  

What assets can I put in trust?

Asset types to put in trust:

• Bank accounts – current and savings accounts, deposit certificates, safety deposit boxes, investment portfolio (free from pension investments), brokerage accounts and mutual funds. Putting your bank accounts in trust, you can determine how they should be used during your lifetime and after your death.  
• Real property can also be put in trust. You should bear in mind, however, that the property has to be located in the jurisdiction where the trust is registered. If you set up a trust in Belize, for example, and the house that you put in trust sits in the United States, it is going to be taxed at the rates applicable in the US and it will be within reach for US courts of law. 
• Life insurance policy is considered an asset as the money is payable to the heirs after the death of the insured person. You can use one of the following scenarios to put your life insurance policy in trust:
  • You can make the trust the insurance receiver and specify in the Deed of Trust how the money is to be used;  
  • You can create a separate trust making it the insurance receiver.
• Stocks, shares, and other securities can also be put in trust. Simply transfer the ownership of your securities to the trust.
• Personal belongings, gifts, items of luxury, expensive works of art, antiques, etc. You can choose one of the following ways of putting such items in trust:
  • Create a living revocable trust to make sure that the items of luxury kept in trust are left to your heirs after you die. This type of trust structure allows adding new items to the collection easily.
  • Create a living irrevocable trust and put your luxury items there. This type of trust structure is the most secure asset protection mechanism.
• Limited Liability Company (LLC) of company ownership shares can be put in living trust too. You can use the profits that the company makes as a trust beneficiary. You can also determine who the company ownership will be inherited via the trust after your death.
• Cryptocurrency – it’s a new type of asset that can be worth more than your real estate or the fiat money that you keep in the bank. Cryptocurrencies can also be put in trust but they are a highly specific asset and care needs to be taken when putting crypto in trust. You have to spend enough time and effort on finding a trustee who knows how to trade in cryptocurrencies.

What assets should I not put in trust?

There are many asset types that you can put in trust. However, some asset types had better be kept outside a trust. These include the following ones:

• Pension assets, including pension accounts such as IRA, 401 (k) or 403 (b). If you put such an account in trust, the transaction can be considered account monetization, which will entail an income tax and therefore, the amount of your pension money will decrease. It can probably even lead to a fine if you haven’t reached the age when you can legally withdraw money from your pension account. At the same time, you can make the trust a (the) beneficiary of your pension accounts.
• Health Savings Accounts (HAS) or Medical Savings Accounts (MSA) are used to accumulate funds for future payments for medical services. The money that goes to such accounts is part of your non-taxable income. For this reason, it cannot be put in trust. However, you can link your HAS or MSA to your trust but appointing the trust the receiver of the money kept in the accounts.
• Real property located in other countries. If your real estate is located in Great Britain, for example, you cannot make it the property of a trust registered in the USA. These are different jurisdictions and each of them has its own legislation governing the issues related to real estate. Please contact our experts to clarify this issue.
• Automobiles and other vehicles. As a matter of fact, it’s not prohibited to put cars and other vehicles in trust. However, there are reasons not to do so. The cost of a car or a boat decreases over time while insurance companies cannot sell insurance policies to trusts (the trust is the car owner). At the same time, there can be exceptions. For example, the price of vintage cars can increase over time. 
• Cash should not be put in trust. Put it on a bank account and put the account in trust. That would be better.

If you have cash that you’d like to protect, please seek our advice on how you can diversify your assets by opening foreign bank accounts in different countries. When your money is in several wallets, it feels safer. 

Create a trust for asset protection together with a professional!

A trust is a great instrument of asset protection and inheritance planning. There are multiple asset types that you can put in trust including bank accounts, insurance policies, business companies, real estate, and so on.

However, before you can put your assets in trust, you have to create a trust! We will be happy to assist you in setting up a trust in a reliable jurisdiction. Judging by our experience, a trust registered in Nevis, Belize, or the Cook Islands will serve asset protection purposes better than a trust domiciled in any other country.