How does an asset protection trust impact taxes?

An asset protection trust can have an impact on taxes. Generally, the trust has to pay taxes on any income it receives, such as interest or capital gains. If the trust is structured properly, the trust can help to protect assets from creditors, as the assets are held in a legally separate entity. Assets held in the trust are not included in the taxpayer’s estate for estate or gift taxes. Additionally, assets held in the trust are not counted as part of the taxpayer’s assets for purposes of determining Medicaid eligibility. In Florida, an asset protection trust must be irrevocable, and the assets must be transferred into the trust irrevocably. The assets must also be held for a certain period of time, usually at least five years. This ensures that the asset protection trust is not used to avoid taxation. The trust structure may provide tax benefits as well, such as reducing the tax burden from capital gains. Assets held in the trust may also be subject to estate taxes but the trust may be used to minimize or avoid this.

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How does an asset protection trust impact taxes?

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