Is Asset Protection Legal?
Absolutely. I am a lawyer and cannot and will not advise you to take any action that is unlawful or illegal. Asset protection is a specialized practice that is recognized by the American Bar Association. The key to effective legal planning is to put it in place before potential creditors attack you. In that case, asset protection planning is 100% permissible. If you are currently being attacked by creditors, you may still have some options available to you, but they will be limited because of “fraudulent transfer” laws. However, even transfers made at the eleventh hour are not typically considered illegal. They are, however, subject to being set aside – “clawed back” – by a court.
What is the single greatest threat to wealthy individuals, businesses, and entrepreneurs today?
Lawsuits. Without a doubt, litigation is the greatest threat to wealth in the United States, because plaintiffs and their attorneys have discovered that filing lawsuits is a profitable business model. More than 40,000 lawsuits are filed in the U.S. each and every day, and they are being filed against people and businesses with pockets deep enough to cover judgments.
Is there an effective legal solution to the threat posed by litigation?
Yes, when properly structured, the use of a specially designed asset protection plan can protect the assets of individuals, partnerships, LLCs and corporations from potential litigation and creditors.
What is the strongest form of asset protection?
There are many forms of strong asset protection. For example, in some U.S. states, life insurance is a protected asset class. Many retirement accounts also have strong forms of protection built-in. In Florida and a handful of other states, homestead protection exists for family homes. With respect to assets that are not otherwise protected (e.g. cash, stocks, bonds, precious metals, real estate investments, art, etc.), the strongest form of protection, in my opinion, is an offshore trust where the trust creator does not serve as trustee or trust protector and where the assets are actually located in an offshore jurisdiction. Once the statute of limitations has passed on any potential claim for fraudulent transfer, such a trust will be almost unassailable.
What is asset protection planning?
Asset protection planning is the use of legal structures to place assets beyond the reach of future of potential creditors. It is legal planning that does not in any way involve evading taxes or secretive or fraudulent agreements. Our techniques are based on proven legal strategies that have been tested over time in the context of estate planning and business law.
Can you prove that your planning works?
Yes, properly structured asset protection plans stand the test of time. Our Portable Offshore Trusts are supported by statutes, case law, and by the laws of the offshore jurisdictions we use (if you ever you ever have to “trigger” your plan). While our offshore planning clients have faced potentially catastrophic lawsuits, none of our plans have ever been pierced. Our domestic Section 541 Special Power of Appointment Trusts are also supported by statutes and/or case law in all 50 states, and such trusts prove highly effective in the face of litigation.
What is the difference between the Portable Offshore Trust and the Section 541 Special Power of Appointment Trust?
The Portable Offshore Trust is a self-settled trust, meaning that you are both the trust creator and the trust beneficiary. In the event that you face litigation, another creditor claim, or if you’re just concerned about the government and safety of your money, your Portable Asset Protection Trust and all the assets in the trust can be moved to an offshore jurisdiction with very favorable laws toward self-settled trusts. This is an excellent option for people who want the flexibility of going offshore at some point in the future and like the idea of having assets beyond the reach of the U.S. government. Moving a Portable Trust and/or its assets offshore is not a fraudulent transfer, because the assets were in the trust before the creditor claim arose. The Section 541 Special Power of Appointment Trust is for people who are more comfortable with the relying on the U.S. legal system. This trust gives you – the trust creator – a special power of appointment. It means that no assets can be distributed unless you give approval as to who will receive those assets and when. There is one important caveat. You can’t give the assets to yourself. That’s what creates the asset protection. Of course, there is a method to have the assets appointed back to you at any time, and it is also possible to unwind these trusts at any time. The Section 541 Special Power of Appointment Trust has strong legal precedents supporting it, and it is a very effective tool for people who aren’t interested in sending their assets abroad to achieve protection. Here’s the best part: It’s possible to add offshore protection to an existing Section 541 Special Power of Appointment Trust.
Can a U.S. judgment be enforced against my offshore assets?
Not if the assets are inside a properly formed asset protection plan, if they are located in the proper jurisdiction, if you do not have control over the assets in your asset protection plan, and if your asset protection plan was established at a time when you had no creditors or potential claims against you. While a U.S. court can order that assets held offshore be used to satisfy a judgment, those orders are simply disregarded by the offshore trustees. If a plaintiff wants to attack your offshore plan abroad, they will face a shortened two year statute of limitations, a litigation system that does not allow contingency attorney fees, upfront costs, and they will have to prove their case “beyond a reasonable doubt.” It’s a pretty tough burden, and I know of no case that has successfully challenged a Cook Islands trust in the Cook Islands.
I have insurance, so why should I be worried about asset protection planning?
Prudent planning dictates a healthy combination of asset protection strategies and liability insurance. There are three main reasons that you need asset protection in addition to insurance. First, if you read your insurance policy carefully, you’ll see that it does not cover you for punitive damages or intentional wrongdoing (a jury will decide if you committed an intentional act or owe punitive damages, not you). Scopes of coverage seem to be decreasing, and the moment a claim is filed against you, your insurance company will begin looking for ways to limit or deny your coverage. Asset Protection, on the other hand, always works to defend you. Second, there is always a possibility that you could be sued for more than your coverage limits. Third, unlike insurance, asset protection can survive you. By properly integrating your asset protection plan with an estate plan, you can provide continual protection for your loved ones after you pass away, so not only do you get the benefit of this planning, but your heirs get it too.
Can I save money on liability insurance if I have an asset protection plan?
Yes. In some cases, asset protection plans pay for themselves in year one with the money saved on insurance premiums. Many asset protection clients reduce or completely eliminate excess malpractice, tail, and/or umbrella coverage.
I have a revocable living trust. Doesn’t that protect me?
Not at all. Revocable living trusts provide virtually no protection for your assets. They are intended only to make sure that your estate “skips” probate court upon your death. While a revocable living trust does provide you with some degree of privacy, a court can order you to revoke it and pay your creditors.
How does asset protection planning deter litigation?
Plaintiffs attorneys don’t take cases unless they believe they will get paid, and an asset protection plan makes it very difficult for aggressive attorneys to collect fees. If you are targeted in a lawsuit, the existence of your asset protection plan, in and of itself, can oftentimes be enough to completely deter litigation. If you are ever sued, there is a strong possibility that you’ll be able to settle the suit for pennies on the dollar once your plan is disclosed. In short, asset protection planning makes you a very unattractive litigation target.
Can I protect assets by giving them to my spouse or children?
Sometimes, but the in the cases where it works, you will lose control of the assets that you gift. In addition, you will lose the income derived from the gifted assets, and you could incur gift taxes if you give the assets to anyone other than your spouse. Finally, if you make a gift while a creditor is lurking, a court may decide to completely “undo” the gift, which means the asset won’t be protected at all.
Why can’t I just hide my money in a Swiss or other offshore account?
Any asset protection plan that requires secrecy or the hiding of assets should be avoided. Virtually all foreign bank accounts are now reported to the U.S. federal government, and if you are sued, the existence of your foreign accounts can easily be discovered. If you have lied about the existence of foreign accounts, you could find yourself in very hot water.
What is your approach to asset protection planning?
Some asset protection attorneys are dogmatic about their approach and only advocate for one strategy. I see merit in many different strategies and always strive to put clients in the plans that fit them best. Most of the time, asset protection strategies either use planning that allows the option to go offshore (e.g. Portable Asset Protection Trusts) or the use of a Section 541 Special Power of Appointment Trust. Both types of planning have advantages, depending on your preferences, and both are highly effective strategies. In both types of plans, an LLC that is owned by the trust will hold your assets. You retain complete control over the assets by serving as the Manager of that LLC.
Can I use your services to create an asset protection plan in anticipation of divorce in order to avoid a property settlement with my spouse or to avoid paying alimony or child support?
If your plan is to place marital assets into an asset protection plan or offshore trust in anticipation of divorce, PLEASE GO AWAY. You cannot place marital assets into a trust that you are forming without the consent of your spouse. If you do create an asset protection plan or offshore trust and fund it with marital assets without the consent of your spouse, a family court has many remedies that can be used to force your compliance with its rulings and your support obligations, including holding you in contempt of court, suspending your driver license, garnishing your wages, and even putting you in jail. Besides that, as an ethical rule, I choose not to work with married people who seek to develop asset protection plans for the sole purposes of divorce planning. This decision has cost me a lot of money, but I stand by it. If you are currently married and want asset protection for marital assets for the sole purpose of planning a divorce, PLEASE GO AWAY. On the other hand, if you are unmarried and want to proactively develop an asset protection plan to protect yourself in a future marriage (or if you’re married and want to develop a plan for your separate assets and with the consent of your spouse), let’s talk.
Will the use of an asset protection plan impede my ability to borrow?
No. Your asset protection plan may be required to post its assets as collateral for loans, which will expose those assets to the bank, but generally speaking, asset protection planning does not impede your ability to borrow.
Why do I need a trust if the assets are going to be held in an LLC?
Some assets can’t be held in the LLC. For example, you will lose the ability to deduct home interest mortgage expenses if your primary residence is owned by the LLC. The same is not true with a properly structured asset protection trust. Also, an LLC by itself can only provide limited protection. A jury can decide to pierce the corporate veil and obliterate the protections of an LLC if you personally own the LLC. With a properly formed asset protection strategy, a trust will own the LLC. That trust will either (i) be capable of liquidating your assets and moving them to an offshore jurisdiction beyond the reach of any U.S. court, or (ii) it will be a Section 541 Special Power of Appointment Trust which cannot be pierced for anything you have done personally or in unrelated business.
Will asset protection planning easily integrate with my existing estate planning?
Yes, a properly structured asset protection plan will seamlessly integrate with your existing estate plan.
How do I know I can trust the foreign trustee?
For the most part, you will have complete and absolute control over the assets in your plan. The asset protection trust will be the owner of an LLC. You will be the Manager of that LLC and the sole person in charge of the entity and its assets. The trust will have no say in the day-to-day operations of the LLC or the use of your assets. With respect to assets held directly by a Portable Offshore Trust, you will be the initial (and, if you wish, sole) trustee. A Special Successor Trustee is named in the trust to take over in the event that you become subject to legal duress. However, the trust will also have a Protector who can veto any actions of the Special Successor Trustee or even fire and replace the Special Successor Trustee. The Protector can also require that all trust accounts and asset transfers be countersigned by both the trustee and the protector. If you are using a Section 541 Special Power of Appointment Trust, there is no need to be concerned about control over your assets at all, as no assets can be distributed to any party except as you direct, and the plan will use an integrated LLC to allow you to have day-to-day control of your assets.
What if a court orders me to bring my assets back the U.S. and appoints my creditors as trustee of my Portable Offshore Trust?
A court can order you to any number of things, but you can only be held in contempt if you fail to do something that is within your power. Your offshore asset protection plan will instruct the offshore trustee to follow your instructions only if you declare, under penalty of perjury, that a court is not ordering you to repatriate your assets. A court cannot order you to commit perjury. As a practical matter, if you are not under duress, the trustee will do whatever you order, or the trustee will be replaced. The trustee can always be removed by the Protector, even if you are under legal duress. However, the trust will provide that the Protector cannot replace the trustee if ordered to do so by a court, yet the Protector will continue to exercise its veto power to protect your assets. With respect to the Section 541 Special Power of Appointment Trust, there is virtually no risk that a court would find you in contempt of court, for a court can’t order you to do anything that would benefit your creditors under the terms of the trust.
What are the tax consequences of your asset protection structures?
The entire structure is tax neutral, regardless of whether you opt to use a Portable Offshore Trust or a Section 541 Special Power of Appointment Trust.
Where will my trust be located?
Your assets can be located anywhere at any time, including your local bank branch. That being said, the trust itself typically resides in the jurisdiction where the trustee lives. In the case of a trust that has been ported offshore, there is no better jurisdiction than the Cook Islands. The Cook Islands government has a vested interest and a long track record in regulating its trustees and making sure that no trust is ever pierced under local law. In short, the Cook Islands are in the business of asset protection. Again, the location of your assets is completely independent of the location of the trust. Your assets can be located anywhere you feel they will be safe.
What criteria do you use to select offshore jurisdictions?
Any country used for asset protection must have a specialized statute for the protection of assets held in self-settled trusts. Qualifying countries must also have a healthy economy, favorable tax laws, a stable government and social system, advanced English communication capabilities, modern telecommunications, favorable laws of legal procedure (e.g. refusal to honor judgments of U.S. courts and not allowing attorneys to work on contingency fees), well educated professionals, a history of geopolitical stability, adequate disaster relief planning, and a proven track record supporting the use of self-settled trusts and providing protection for assets held in self-settled trusts. The Cook Islands meet all of the above-listed criteria.
Who should I call to discuss an asset protection plan suited to my needs?
Call Wayne Patton at (850) 803-1166 for an asset protection consultation.