Asset protection law is a complex area of legislation that involves the use of various legal strategies and techniques to safeguard assets from potential creditors, lawsuits, and financial threats. These strategies can help protect an individual’s financial well-being and provide peace of mind in the face of potential legal and financial challenges. Our management has been engaged in establishing asset protection tools since 1991.
So, what do we do? The first step in asset protection planning is that we identify and categorize all the assets an individual owns. This includes everything from bank accounts to real estate and investments to business interests and personal property. By thoroughly cataloging all of an individual’s assets, it is possible to get a clear picture of determine which assets may be at risk and to know the tools we need to set up.
Homestead Asset Protection Laws
For instance, most states provide little to no legal protection for one’s personal residence. States such as New Jersey and Pennsylvania offer no homestead protection at all. Alabama, Georgia, Hawaii, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Michigan, Missouri, North Carolina, Oregon, Tennessee, Utah, Virginia, West Virginia and Wyoming offer poultry sums. So, sue someone in these states and you can often seize his or her home with relative ease. Therefore, we generally need to employ legal tools and strategies to protect homes in these estates.
A small handful of states have asset protection laws on their books that protect one’s personal residence. Florida, Iowa, Kansas, Oklahoma, Arkansas, South Dakota, Washington DC and Texas have such provisions if properly followed. Laws in these states can protect 100% of the home equity. So, for people who own homes in these states, we likely need to protect their other assets but not their personal residence. However, even in these states, when we put together an asset protection plan for a divorce, we also need to protect the home, if possible.
Here Is an Example
For example, a gentleman in New Jersey owns a trucking company. One of his employees just rear-ended a car. Someone is suing or threatening to sue the business owner for far beyond the limits of his insurance coverage.
Let’s say this prospective client has the following assets:
- $150,000 in a bank account and $1.4 million in a stock market portfolio.
- They have an $850,000 house that is free and clear.
- Two cars are paid off and worth a total of $140,000.
- They also have two rental homes worth $500,000, each with $200,000 mortgages.
What We Do Next
Once we identify a prospective client’s assets, we evaluate the potential risks that may pose a threat to those assets. This includes identifying potential creditors or lawsuits that could target the individual’s assets. It is also important to consider any potential changes in an individual’s financial circumstances that may increase the risk a creditor seizing their assets.
EXAMPLE: The prospective client lives in New Jersey, which has no homestead protection. So, all assets, including his house, are vulnerable.
Implement Asset Protection Law
After we identify the risks, it is time to implement asset protection law strategies. There are several legal tools and strategies that can be used to protect an individual’s assets. This may include trusts, limited liability companies (LLCs), and offshore asset protection tools. Each of these strategies has its own unique benefits, and it is important to carefully consider which option is best for an individual’s specific needs and goals. Let’s now talk about our options.
Asset Protection Trusts
One popular asset protection strategy is the use of trusts. Trusts are legal arrangements in which one person (the trustee) holds legal title to property for the benefit of another person (the beneficiary). There are several different types of trusts. Two broad categories include revocable trusts and irrevocable trusts. The irrevocable trust may have spendthrift provisions that aim to secure the assets that trust holds. Each type of trust has its own specific rules and regulations, and it is important to work with an experienced attorney to determine which type of trust is best for an individual’s needs. We have attorneys on staff who may be able to help.
EXAMPLE: Let’s use the above example again. We might put each piece of real estate into separate land trust. Whereas the land trust does not provide asset protection, it does offer privacy of ownership. We will talk later about asset protections trusts.
Another option for asset protection is the use of limited liability companies (LLCs). LLCs are business structures that provide personal liability protection for their owners (called members). This means that if the LLC is sued or incurs debt, the members’ personal assets are typically not at risk. LLCs are a popular choice for small business owners and individuals who want to protect their personal assets from potential creditors.
EXAMPLE: We may use LLCs as the beneficiaries of those trust; except for one’s personal residence. So, the home and two rental properties go into separate land trusts. We then set up two LLCs, one for each rental property. The LLCs become the beneficiaries of each of the two land trusts, one LLC per land trust.
Offshore Asset Protection Law
Offshore asset protection law is another strategy that some individuals may consider. This involves transferring assets to a trust in a jurisdiction outside of the United States. The goal is to make it difficult or nearly impossible for creditors to access trust assets. Offshore asset protection trusts are some of the most powerful asset protection tools. Two of the strongest and most trusted jurisdictions are the Cook Islands and Nevis. Our organization has established more asset protection trusts in the Cook Islands than anyone in the world.
EXAMPLE: We set up an offshore asset protection trust in the Cook Islands. We place a Nevis LLC inside the trust. That is, the Cook Islands trust is the sole member of the LLC. The LLC holds the bank and investment accounts. The international bank offers debit cards and online access to easily access funds.
Then, we record equity stripping lines of credit against each piece of real estate. Furthermore, we record UCC-1 liens against the business and its equipment. If needed in the future, we have third-party lenders who can purchase the liens. The lender places the proceeds into an inaccessible account within the offshore trust structure.
It is important to keep in mind that asset protection planning is not a one-time process. It requires ongoing maintenance to ensure that an individual’s assets are adequately protected and to address any changes in their financial circumstances. This may involve revisiting an individual’s asset protection plan on a regular basis and making any necessary adjustments.
In addition to the strategies and techniques mentioned above, there are several key considerations to keep in mind when it comes to asset protection planning:
- Timing is important: It is generally easier to protect assets before they are at risk of being seized by creditors. Once a lawsuit has been filed or a judgment has been entered against an individual, there are strategies that we can employ. However, it may be more difficult to protect assets after the fact.
- State laws vary: Asset protection laws vary from state to state. So, it is important to work with an attorney who is familiar with how various asset protection tools can affect you.
- Offshore asset protection is one of the most powerful: There are ever-expanding theories of legal liability in the United States and many other nations. Thus, thousands of individuals employ offshore asset protection strategies. Select jurisdictions have asset protection statutes that are much friendlier to judgment debtors than laws back home.
Asset Protection Limitations
Another important aspect of asset protection law planning is understanding the limitations of the various legal tools and strategies available. For example, while domestic asset protection trusts can be effective at protecting assets from creditors, they are far from foolproof. Many creditors successfully challenge domestic trusts in court and gain access to the assets they hold. This is where many of the offshore asset protection laws shine. Offshore asset protection trusts in the countries we have mentioned have stronger laws than domestic ones to keep assets beyond the reach of domestic creditors.
Legal and Ethical
In addition, it is important to keep in mind that asset protection planning must be done in a way that is legal and ethical. Using fraudulent or deceptive tactics to protect assets can have serious consequences, including criminal charges and financial penalties. In short, protecting works. Hiding doesn’t.
It is also important to keep in mind that asset protection planning may not be appropriate for everyone. In some cases, an individual’s assets may not be at significant risk of being seized by creditors. Another person may simply not have many valuable assets to take. As such, the costs and complexity of implementing an asset protection plan may not be justified. It is important to carefully evaluate the potential risks and benefits of asset protection planning before proceeding.
Overall, asset protection planning is a complex and nuanced area of law that requires the guidance of an experienced attorney or consultant. By working with a knowledgeable professional and carefully considering the potential risks and benefits, it is possible to develop a customized asset protection plan to keep other’s hands out of your pockets. Feel free to fill out a free consultation form or call us during business hours.