An Asset Protection Trust is a trust that holds a person’s assets for the purpose of shielding them from creditors.
How does it work? Essentially you establish a trust by contributing money or other assets to the trust and then designate yourself as a beneficiary with access to the funds in the trust account. If it is properly set up, creditors won’t be able to seize the trusts assets if they get a judgement against you.
There are tax implications though. Since the trust is a separate legal entity, the trust is required to file its own income tax return. A trust that is resident in Canada is taxed in Canada on its worldwide income.
In Canada a trust is resident for tax purposes in the place were the central management and control of the trust takes place. This usually means where the trustee, administrator or other legal representative of the trust is resident. But the residence of the trustee or other representative of the trust does not always determine where the trust is resident. So for example, if you set up a trust in an offshore tax haven where you appoint a trust company in that jurisdiction as the trustee, but you actually make the investment or other management decisions, and you reside in Canada, then the Canada Revenue Agency will treat the trust as resident in Canada for tax purposes.
Setting up an Asset Protection Trust is a complex structure that you can’t do on your own. You will need the help of a skilled professional experienced with Asset Protection Trusts.