Asset Protection Terms and Definitions

Diversification
Holding several investments that have different risks. The concept of "Don't put all your eggs in one basket." The chance that a single stock or other investment will lose money is offset by the chances of your other stocks and investments making money.

Spendthrift Trusts
A spendthrift trust is created specifically to provide asset protection for the beneficiary. These trusts are written so that the beneficiary can receive the benefit of the trust, but have no right to demand benefits from the trust.

Trustee
The person who receives legal title to the assets in the trust but is legally obligated to hold, manage, and invest the trust assets for the benefit of the beneficiaries. The trustee's duties are set by the trust agreement and by law.

Living trust
A trust that is established while the grantor is still alive. Compare to testamentary trust.

Testamentary trust
A trust that is established by will. Compare to living trust.

Private mortgage insurance (PMI)
Protection for the lender against a loss if a borrower defaults on a loan. It is usually required for loans in which the down payment is less than 20 percent of the sales price or, in a refinancing, when the amount financed is greater than 80 percent of the appraised value.

Foreign Bank Accounts
There is a thriving industry of offshore practitioners advising U.S. citizens to set up offshore bank accounts.

Durable power of attorney
A power of attorney that remains valid when the principal becomes incapacitated.

Real estate investment trust (REIT)
A type of investment that pools the money of many individuals and acquires real estate or mortgages that are then owned proportionally by each investor.

Tax exempt entity
To hold the protected assets. The stock in this tax exempt entity can be held by an asset protection trust. As a result, the stock does not show up on the balance sheet of the taxpayer and the income from the assets is likewise off the tax return of the protected client.