Ok, I think im missing something here. Everyone keeps touting asset protection as one of the major benefits of discretionary trusts but I dont see it.
I'll use the purchase of a commercial property as an example as it is cashflow positive in order to illustrate my lack of understanding.
To start with the trust needs money. So you loan $1M to the trust. The trust then gears it 50:50 and purchases a $2M factory. This means that creditors can still claw back $1M worth of assets.
Secondly, since it is cashflow positive the trust has annual income to distribute. Distributions are paid. Now, to get the distributions back into the trust the beneficiaries make another loan to the trust. This leaves even more money that is available for creditors to access.
Yes the value of the asset will eventually grow but that will take a long time and means many years where asset protection is minimal.
Is there another aspect to the asset protection story that I yet dont understand?
I'll use the purchase of a commercial property as an example as it is cashflow positive in order to illustrate my lack of understanding.
To start with the trust needs money. So you loan $1M to the trust. The trust then gears it 50:50 and purchases a $2M factory. This means that creditors can still claw back $1M worth of assets.
Secondly, since it is cashflow positive the trust has annual income to distribute. Distributions are paid. Now, to get the distributions back into the trust the beneficiaries make another loan to the trust. This leaves even more money that is available for creditors to access.
Yes the value of the asset will eventually grow but that will take a long time and means many years where asset protection is minimal.
Is there another aspect to the asset protection story that I yet dont understand?