Asset protection planning is the adoption of advance planning techniques which place one’s assets beyond the reach of future potential creditors. In our practice, it does not involve hiding assets, nor is it based upon secret agreements or fraudulent transfers. It is based upon proven sophisticated combinations of business and estate planning techniques.

Yes. Properly structured, asset protection planning can effectively protect your assets from potential litigants and creditors. It allows an individual, partnership, LLC, or corporation to protect assets against unanticipated claims, yet maintain a great degree of flexibility.

Litigation. We live in a society where litigation has become a popular tool for the accumulation of wealth. This is not only by plaintiffs, but by their attorneys as well. Lawyers can now earn from 25% to over 50% of the assets they recover!

If you review your insurance policy, you’ll find that it does not cover you for punitive damages or intentional wrongdoing. In addition, with the ongoing financial crisis and its impact on the insurance industry, the financial stability of liability insurance companies is never certain, and the scope of coverage seems to be decreasing all the time. Finally, a claim can always be made which will exceed your coverage. Prudent planning would include a combination of asset protection strategies and liability insurance.

Yes. The insurance savings from our asset protection planning can pay not only for its full cost in most cases, but can sometimes do so in the first year alone. For example, asset protection can significantly reduce or eliminate the umbrella coverage that most business owners and physicians have over and above the minimum liability insurance normally carried. Some of our clients have saved tens of thousands of dollars per year in this manner. The same applies to malpractice and tail insurance.
 

When a potential client consults a litigator, the attorney will analyze the merits of the client’s case, and, if the case looks strong, make a determination regarding whether a judgment, if won, can be collected. If the lawyer does not believe he can collect the judgment – the source of his fee – he will not take the case. Sophisticated asset protection planning reduces or eliminates the ability of a creditor to collect a judgment from you, making you an unattractive target for the litigator.

Of course you can make gifts to anyone. But if you truly give it away, you can no longer enjoy control over the asset, and if you give it to someone other than your spouse, you will also lose the income from the property and possibly incur gift tax consequences. Moreover, the property will then be exposed to the new owner’s spouse and other creditors. Finally, if you make the gift when a creditor is nipping at your heals, the transfer can be set aside by a court, unless you (and/or the donee of your gift) commit perjury, which is a crime.

While investing funds in a Swiss or other foreign account may prove to be a worthwhile investment, any asset protection planning which depends upon hiding assets or secrecy is doomed to failure. As a U.S. taxpayer, the law requires you to report your financial interest in, or signature authority over, any foreign bank account, securities account, or other financial account. If you comply with this requirement, as you should, a creditor can obtain this information in a lawsuit, and if you lose the suit, the court can order you to bring the funds back to the U.S. to satisfy the judgment. If you intentionally fail to comply with the foreign account reporting rule, you will be committing a serious crime – and the U.S. IRS does have the means to uncover non-reporters.

The use of an offshore corporation (or an LLC by itself) is generally inappropriate for asset protection purposes. First, you will likely incur a taxable gain on transferring assets to the offshore corporation, second, you will be subject to extensive federal tax reporting requirements (with criminal penalties for intentional failure to comply), and finally, a U.S. court can order you, as the owner of the offshore corporation, to bring the assets back to the U.S. (likely resulting in another taxable gain!).

In a typical case, our approach to asset protection planning involves an offshore asset protection trust (OAPT) combined with an offshore limited liability company (LLC). You form the LLC and contribute those assets which are to be protected to the LLC. You become the manager of the LLC, and the LLC member (owner) is the offshore asset protection trust you have also created. As the manager, you retain direct control over the management, investment, and distribution of the protected assets. No third-party consent is required for the purchase, sale, pledge, or in connection with any other transaction in regard to these assets. For those not desiring to use foreign jurisdictions, U.S. domestic asset protection planning can also be accomplished using similar entities albeit the level of protection would obviously be less because the entities holding your assets would be in the U.S. and therefore subject to the jurisdiction of its courts and their orders.

First, with respect to the assets held in your offshore LLC (all of the protected assets, with the minor exceptions discussed above), you (as the manager) will have direct and absolute control. You will write the checks; you will make all the decisions. The offshore asset protection trust will be the LLC member (analogous to a shareholder in a corporation), and, as such, it will have no voice in the day-to-day operation of the LLC. With respect to the assets held by the trust (either initially, as discussed above, or, if the LLC is liquidated), an independent unrelated company — as the "trust protector" — will have the power to veto any action of the trustee, and to remove and replace the trustee with or without cause. The trust protector can also require that all trust accounts and assets must have both the protector’s signature and the trustee’s signature in order for any transfer to take place.

A court can order you to do almost anything, but it can only hold you responsible if you fail to do something that is within your power. While your protector does have the power to remove and replace the trustee, the trust provides that the exercise of this power will be ineffective if the protector attempts to exercise it under duress (such as under a court order). Similarly, a court cannot hold you responsible for failing to bring the trust assets back to the U.S. – you do not have that power. In addition, your trust protector only has the power to veto trustee actions, not to order them. As a practical matter, of course, if you are not under a court order, the trustee will take whatever action your protector suggests, or the protector will replace him.
 

Entirely. The key to effective asset protection planning is the word "ADVANCE". As long as this type of planning is undertaken in advance of a creditor appearing on the horizon, it is 100% legal to protect yourself. Unfortunately, many people first seek to protect their assets after they have been sued or otherwise incurred an obligation. In such circumstances the planning options are significantly narrowed because of fraudulent transfer laws which permit a court to set aside transfers made at the "eleventh hour".

While the property itself may be located anywhere, including your local bank in the U.S., the trust itself will be domiciled in an offshore jurisdiction that has enacted asset protection legislation. Among these juridictions are the Bahamas, Belize, Cayman Islands, Cook islands, Cyprus, Gibraltar, Mauritius or the Turks & Caicos islands. In the case of a fiscal crisis, the trustee can relocate the assets outside the jurisdiction of a U.S. court.

•Selecting the jurisdiction in which the trust will be located is a very important step. Consideration must be given to a number of factors at that location, including:
• Healthy economic environment,
• Stable political and social system,
• Favorable trust protection and tax laws,
• Compatible verbal communication,
• Quality professional services,
• Modern telecommunications, 
• Procedural and legal advantages, and
• A tried and proven track record.

The typical form of Asset Protection Trust is a discretionary trust (with the Settlor as one of the beneficiaries). An Asset Protection Trust often provides for the accumulation of income during the term of the trust. It is quite important that the trust be irrevocable, the assets are situated offshore, and that everyone who has control of the assets is located offshore. The Settlor should not reserve for himself the power to distribute trust capital or have the power to change the governing law/trustees/location of the Asset Protection Trust.

In brief, the creation and operation of an Asset Protection Trust is made possible by enacting special legislation in the foreign jurisdictions where the trust resides. The legislation provides that a transfer of property to a special trust in specific circumstances cannot be set aside by the creditors of the Settlor. Generally, the conveyance to the Asset Protection Trust is not prohibited where the Settlor was not rendered insolvent as a result of the transfer. Depending upon the jurisdiction, there may be specific requirements for registering the Asset Protection Trust, the trustee or the conveyance, etc.

As can be expected, U.S. lawmakers and the IRS do not like the idea that people can avoid payment to their creditors by simply moving their assets out of the U.S. In order to prevent this, legislation has been enacted with the intent to prevent "Insolvent" people from transferring their assets in a fraudulent manner, or with the intention or effect of defeating or delaying creditors. It is safe to say that anyone transferring, or assisting in the transfer of assets to an Asset Protection Trust when the Settlor is insolvent, will face the possibility of both civil and criminal charges. Accordingly, caution must be exercised if there is any question of insolvency. It is also recommended that an Asset Protection Trust be considered where a domestic trust would otherwise be used as part of the estate plan.

In some cases, yes, although our planning options are considerably narrowed under such circumstances. Asset Protection is a vaccine, however, not a cure, and it is best viewed as preventive medicine. It is very difficult to purchase fire insurance once the fire has started. It is advisable to have the legal restructuring completed before litigation is even on the horizon. It can, however, be very helpful during and after litigation, as well.

If you would like more information regarding asset protection planning or trusts please call or email our office.