Category: Business and Corporate

Asset Protection Trusts: What Business Owners and Professionals Should Know

Many professionals and business owners spend years building significant assets through their careers and investments.

As wealth grows, it is natural to begin thinking about how to protect those assets from potential future risks while still maintaining a thoughtful estate plan.

One planning structure sometimes considered in these situations is an asset protection trust.

Understanding how these trusts work—and the legal limitations surrounding them—is an important part of evaluating whether they belong in an overall estate plan.

What Is an Asset Protection Trust?

An asset protection trust is typically an irrevocable trust designed to hold assets in a way that may provide protection from certain future creditor claims.

Once assets are transferred into the trust and the trust is properly structured, the assets are generally no longer owned directly by the person who created the trust.

Instead, the assets are owned and managed by the trust according to its terms.

Why Some Individuals Consider Asset Protection Planning

Asset protection planning is often discussed by individuals whose professions or business activities may expose them to a higher level of potential liability.

This can include:

  • business owners
  • physicians
  • executives
  • real estate investors
  • individuals with significant personal wealth

The goal is not to avoid legitimate obligations, but rather to create a structure that protects assets from unforeseen future risks while still allowing thoughtful estate planning.

Important Legal and Ethical Considerations

It is critical to understand that asset protection planning must be done well in advance of any creditor issues.

These strategies are intended to address potential future risks, not to avoid known obligations.

Asset protection trusts cannot legally be used to:

  • avoid existing creditor claims
  • shield assets from known liabilities
  • defraud creditors

Courts can set aside transfers that are considered fraudulent conveyances, meaning transfers made with the intent to hinder or delay known creditors.

For this reason, legitimate asset protection planning is always done proactively and transparently, before any claims arise.

How Asset Protection Trusts Are Structured

Because these trusts are intended to remove assets from the grantor’s direct ownership, they are generally irrevocable trusts.

They may involve:

  • an independent trustee
  • discretionary distributions
  • carefully drafted trust provisions governing access to trust assets

Some states have enacted statutes specifically addressing certain forms of domestic asset protection trusts, while other planning strategies may involve trusts created in jurisdictions with established trust laws.

The appropriate structure depends heavily on the individual’s circumstances and the governing state law.

Asset Protection as Part of a Broader Plan

Asset protection trusts are rarely used in isolation.

Instead, they are typically considered as part of a broader planning strategy that may include:

  • liability insurance
  • business entity structuring
  • traditional estate planning trusts
  • coordinated tax planning

Taken together, these elements can create a more comprehensive approach to managing both wealth and risk.

Planning Before Risk Arises

The most important aspect of asset protection planning is timing.

Planning that occurs long before any issues arise is far more likely to achieve its intended purpose than planning attempted after a claim has already developed. For individuals whose careers or investments expose them to potential liability, reviewing these issues early can help ensure that the estate plan addresses both long-term wealth planning and risk management.

Estate Planning for Business Owners Before a Liquidity Event

For many business owners, the most significant financial moment of their lives is a liquidity event—such as the sale of a business, a merger, or a public offering.

These events can create substantial wealth very quickly. But they can also create significant tax exposure and estate planning challenges if planning has not been addressed in advance.

The key is that many of the most effective strategies must be implemented before the transaction occurs.

Why Timing Matters

When a business is about to be sold or undergo a major transaction, its value is often expected to increase dramatically.

If planning is done early enough, it may be possible to transfer some of that future growth to the next generation in a tax-efficient way.

Once a transaction is already underway—or once the value has already been realized—the available planning opportunities can become much more limited.

Planning With Grantor Trusts

Many advanced estate planning strategies for business owners involve the use of grantor trusts.

A grantor trust is a trust that is treated as owned by the person who created it for income tax purposes, even though the assets in the trust may be outside the grantor’s taxable estate for estate tax purposes.

This structure can create powerful planning opportunities.

Because the trust is ignored for income tax purposes:

  • Transactions between the grantor and the trust are often not treated as taxable events
  • The grantor continues to pay income tax on the trust’s income
  • The trust assets may grow outside the grantor’s estate

In effect, the grantor’s payment of the income taxes on trust assets can allow the trust to grow more efficiently for the benefit of future generations.

Strategies Often Considered Before a Liquidity Event

Depending on the situation, business owners may explore strategies such as:

  • Grantor Retained Annuity Trusts (GRATs)
  • Sales to intentionally defective grantor trusts
  • Lifetime gifting of business interests
  • Family trust structures designed to hold future appreciation

These strategies are typically designed to shift future growth in the business to trusts for children or other beneficiaries while the owner retains control or economic benefits for a period of time.

The Importance of Valuation

A critical component of planning before a liquidity event is the valuation of the business interest being transferred.

Estate planning techniques often rely on carefully documented valuations that support the value assigned to the transferred interests.

Because transactions can move quickly once negotiations begin, addressing these issues well before a sale process begins is often essential.

Coordinating Estate Planning With Transaction Planning

Estate planning should be coordinated with:

  • business attorneys
  • tax advisors
  • transaction advisors

This ensures that the estate planning strategy works alongside the broader transaction structure.

When these professionals work together early in the process, business owners often have more flexibility in structuring both the transaction and their long-term estate plan.

Planning Ahead Can Make a Meaningful Difference

For business owners and executives, the period before a liquidity event can represent one of the most important windows for estate planning.

By considering planning strategies early—before a transaction is finalized—it may be possible to transfer future growth to the next generation in a thoughtful and tax-efficient way. Reviewing these opportunities well in advance can help ensure that a successful business transition also supports long-term family planning goals.

GRATs Explained: A Strategy Many Business Owners Use to Transfer Wealth Efficiently

For individuals with significant assets—particularly business owners and executives—estate planning often involves strategies designed to transfer wealth efficiently to the next generation.

One technique that is frequently used in sophisticated estate plans is the Grantor Retained Annuity Trust, commonly called a GRAT.

While GRATs can sound complex at first, the core concept is relatively straightforward.

What Is a GRAT?

A Grantor Retained Annuity Trust (GRAT) is an irrevocable trust designed to transfer appreciation on assets to beneficiaries while potentially minimizing gift and estate taxes.

When a GRAT is created:

  1. The grantor transfers assets into the trust.
  2. The grantor retains the right to receive an annuity payment from the trust for a fixed period of time.
  3. At the end of the term, any remaining assets pass to beneficiaries, often children or trusts for their benefit.

The goal is for the assets in the trust to grow faster than the assumed IRS interest rate used when the GRAT is created.

If that happens, the excess growth can pass to beneficiaries with little or no transfer tax.

Why GRATs Are Often Used With Business Interests

GRATs are frequently used by:

  • founders
  • business owners
  • executives with concentrated equity positions

These individuals often hold assets that may experience significant growth over time.

By transferring those assets into a GRAT, the future appreciation can potentially move to the next generation while the grantor continues receiving annuity payments during the trust term.

The Importance of the GRAT Term

A key element of the strategy is the length of the trust term.

If the grantor survives the GRAT term, the remaining assets pass to beneficiaries according to the trust structure.

Because of this, many GRAT strategies use relatively short terms, sometimes implemented in a series of rolling GRATs over time.

When GRATs May Be Appropriate

A GRAT may be worth considering when someone:

  • owns assets expected to appreciate significantly
  • has already accumulated substantial wealth
  • wants to transfer value to the next generation efficiently

Common assets used in GRAT planning include:

  • closely held business interests
  • company stock
  • investment portfolios expected to grow

GRATs Are Only One Piece of the Plan

While GRATs can be powerful, they are typically used as one component of a broader estate planning strategy.

Other planning structures—such as irrevocable trusts, lifetime gifting strategies, and coordinated beneficiary designations—often work alongside GRAT planning.

Because of the technical nature of the rules governing GRATs, careful drafting and ongoing planning are essential.

Planning Ahead Matters

For business owners and executives whose wealth may continue to grow significantly, thoughtful estate planning can make a meaningful difference over time.

Strategies like GRATs are designed to address that reality by allowing future appreciation to move outside the taxable estate under the right circumstances.

For families with significant assets, reviewing planning opportunities periodically can help ensure the estate plan continues to align with long-term financial goals.

The Power of Beneficiary Designations: What Every Client Should Know

One of the most overlooked tools in your estate plan are beneficiary designations. Here’s what you need to know about them.

When people think of estate planning, they often picture wills and trusts – but one of the most powerful tools in your estate plan is often overlooked:  beneficiary designations. Those simple designations, tied to retirement accounts, life insurance, and even some bank accounts, can override your will and determine the direct transfer of wealth at death.  From an estate planning perspective, that makes them both incredibly useful – and potentially risky if not managed carefully.

Why Beneficiary Designations Matter So Much?

  1. They Bypass Probate. Assets with named beneficiaries (like IRAs, 401(k)s, and life insurance) typically pass directly to those beneficiaries without going through probate. This means faster access for your loved ones and fewer legal fees.
  2. They supersede your will. Even if your will says one thing, the beneficiary form rules.
  3. They’re critical in tax planning. Designations can also affect how your heirs are taxed. For example, naming individuals as beneficiaries of a retirement account can help stretch the tax impact over 10 years, while naming your estate may accelerate taxes unnecessarily.

Common Mistakes We See:

  • Outdated beneficiaries (especially after divorce, remarriage, or the birth of children)
  • No contingent beneficiaries listed
  • Minor children named directly (can lead to court-appointed guardianship)
  • Mismatched designations and estate planning documents
  • Failure to name a trust when appropriate (especially for special needs beneficiaries or complex family dynamics)

What You Should Do Now?

  1. Review all beneficiary designations annually or after major life events.
  2. Coordinate designations with your overall estate plan.
  3. Consider when to name a trust as a beneficiary – for example, to manage distributions to minors or protect assets from creditors.

Need a Beneficiary Review?

We offer beneficiary audits as part of our estate planning services.  Whether you’re updating your old estate plan or just getting started, we’re here to help ensure your designations reflect your true wishes – and work in harmony with your plan.

About the Author

Hillary E. Mims
NC State Bar Certified Paralegal

Ensuring Your Legacy: The Importance of Takers of Last Resort in Estate Planning

A customized estate plan provides you with peace of mind, knowing your legacy will be preserved and your beneficiaries will be cared for.

As estate attorneys, one of the most valuable skills you can offer your clients is custom drafting that meet their unique needs and goals. In our initial planning conferences, we take the time to thoroughly discuss a variety of provisions that may be essential for your estate plan, including the inclusion of “takers of last resort.” These are individuals, organizations, or entities designated to inherit assets if no primary or secondary beneficiaries can be located. This provision is critical for clients who have complex family structures, multiple beneficiaries, or uncertain future circumstances.

For those who may not have clear successors or wish to ensure their estate plan remains relevant as family dynamics shift, a taker of last resort provision is especially important. It allows you to have peace of mind, knowing that, in the event your intended heirs are unavailable or cannot be found, the estate will still be distributed in accordance with your wishes—rather than subject to the state’s default laws, which may not reflect your desires or intentions. By proactively including this safeguard in the trust, we can prevent the estate from becoming entangled in lengthy probate proceedings or being distributed to unintended parties. This provision ensures that the assets go where you want, even as your personal circumstances and family structure evolve over time.

Additionally, the ability to craft specific gifts—whether monetary, real property, or sentimental items—is a crucial element of thoughtful estate planning. Many clients have particular wishes when it comes to leaving real property, businesses, or financial assets to specific individuals, whether it’s family land passed down through generations, a business venture, or a certain sum of money designated for a loved one or charitable cause. A well-drafted trust can clearly outline these specific gifts, ensuring that the client’s intent is carried out exactly as envisioned. Without clear documentation, these gifts could potentially cause confusion, disputes, or even litigation among heirs, leading to unnecessary delays, emotional stress, and financial burdens.

When an estate plan includes well-defined specific gifts, it allows for a smoother, more organized distribution of assets. You benefit from an estate plan that not only safeguards your legacy but also reduces the potential for disagreements among heirs. This level of specialization provides a sense of security, knowing your wishes are clearly understood and your beneficiaries will receive what you intended. Ultimately, a tailored estate plan that incorporates specific gifts ensures a streamlined administration process, protecting both your desires and the interests of your beneficiaries.

In summary, specialized estate planning, including provisions for “takers of last resort” and specific gifts, ensures that your assets are distributed according to your wishes, even in the face of changing family dynamics or unforeseen circumstances. By clearly outlining these provisions, we can help clients avoid potential disputes, reduce confusion, and streamline the estate administration process. Ultimately, a customized estate plan provides you with peace of mind, knowing your legacy will be preserved and your beneficiaries will be cared for.

About the Author


Emily B. Johnson
Legal Assistant

Estate Planning in the New Year: Ensuring a Secure Future

Estate planning is a critical element in this process, providing the tools and strategies necessary to protect your assets, ensure your wishes are carried out, and reduce the burden on your family.

As we step into the new year, it’s an ideal time to reflect on the state of our personal finances and take proactive steps toward securing the future for ourselves and our loved ones. Estate planning is a critical element in this process, providing the tools and strategies necessary to protect your assets, ensure your wishes are carried out, and reduce the burden on your family. In 2025, with evolving laws, emerging technologies, and societal shifts, estate planning takes on new importance, offering a chance to adapt and refine your approach to wealth preservation.

Why Estate Planning Matters

Estate planning is not just for the wealthy. Everyone, regardless of the size of their estate, can benefit from having a plan in place. At its core, estate planning is about ensuring that your assets are distributed according to your wishes, minimizing taxes, and avoiding conflicts among family members after your death. It also includes making provisions for your care in case of incapacity, ensuring your healthcare wishes are honored, and naming trusted individuals to manage your affairs.

Adapting to Change in 2025

The landscape of estate planning is evolving. With ongoing changes in tax laws, especially those related to estate and gift taxes, it’s essential to stay informed about new rules that may impact your planning strategies. For instance, the 2025 expiration of certain tax provisions, including higher estate tax exemptions, is creating urgency for many to reassess their plans. Actively working with an estate planning attorney can help you take advantage of tax-saving strategies before potential changes take effect.

Digital Assets and Technology

Another trend to consider in the new year is the rise of digital assets. In today’s digital world, many individuals hold valuable online accounts, cryptocurrency, digital art, and social media profiles. These digital assets require specific attention in your estate plan to ensure they’re properly managed and passed on to your beneficiaries. Make sure to review and update any digital accounts, passwords, and other online assets.

Additionally, technology continues to influence estate planning tools. Online platforms such as blockchain technology used for securely transferring assets, are becoming increasingly popular. These innovations make the estate planning process more accessible and efficient, ensuring your wishes are securely documented.

Healthcare and Long-Term Care

As the population ages and life expectancy increases, long-term care and healthcare planning become even more crucial. Whether it’s creating healthcare directives, selecting a healthcare proxy, or securing long-term care insurance, preparing for medical needs in later life is an essential part of a comprehensive estate plan. With the rising costs of healthcare, planning ahead for these potential expenses can safeguard your wealth and provide peace of mind.

Estate planning in the new year offers a fresh opportunity to review and refine your plans. Whether you are addressing new tax laws, digital assets, charitable giving, or healthcare concerns, the time to act is now. By taking a thoughtful, proactive approach to estate planning, you ensure that your wishes are respected, your loved ones are cared for, and your legacy endures for generations to come. Don’t wait for the unexpected; start the year off with a clear, updated estate plan that will guide you through the future with confidence.

About the Author

Todd A. Stewart, JD
Founding Partner