Strategic Asset Protection Planning


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Asset protection is all about taking chips off the table in good times, so that you can walk away from the table a winner no matter what happens in bad times. Hence, asset protection planning is designed to apply a series of techniques to protect your assets from the claims of future creditors thereby, taking your chips (exposure) off the table. The techniques are designed to deter potential creditors from going after you and to impede or make it nearly impossible for creditors to seize your assets or collect judgments.

Start Planning Early. There are a variety of options to provide asset protection before a claim or liability arises, but afterward the options are limited. That’s because what you do after a claim rises could be undone by “fraudulent transfer” law. 

Day Late, Dollar Short. Asset protection planning after a claim arises is apt to make matters worse. A fraudulent transfer is (1) a transfer that is entered into with the actual intent to hinder, delay or defraud any creditor, or (2) a transfer of an asset for less than equivalent value with the reasonable belief that you will incur a debt beyond your ability to pay. ┬áIt is a common misconception that the only thing a judge can do is to unwind a fraudulent transfer, leaving a debtor who unsuccessfully tried late planning no worse off than if he had done nothing. To the contrary, both the debtor and whoever assisted in the fraudulent transfer can become liable for the creditor's attorney fees, and the debtor can lose the hope of getting a discharge in bankruptcy. Because the timing of the transfer dictates the effectiveness of the protection, you should not delay your asset protection planning.

Asset protection planning should not be a substitute for liability and professional insurance, but rather should supplement insurance. It is a myth that asset protection plans invariably scare away plaintiffs, and an asset protection plan doesn't pay legal fees to defend against a lawsuit. Insurance also supplements asset protection planning, since it can help a debtor survive a claim a fraudulent transfer claim. If you get sued, let the insurance company pay to defend it and pay to settle it -- that's what the insurance is for.

Personal Assets Are For Trusts; Business Assets Are For Business Entities. Business entities such as corporations, partnerships and LLCs are meant to be vehicles for commercial operations. When personal assets are placed into a business entity, there is the potential for the entity to be pierced by a creditor. The place for personal assets is in a Trust.  

Trusts for estate planning purposes, you may have established a revocable living trust to hold and manage your assets during your lifetime and to transfer assets following your death. If you establish a trust and name yourself as the beneficiary, then the trust is considered a “self-settled” trust, and it offers no creditor protection. Likewise, if the trust is revocable by you at any time, no asset protection is available. Moreover, these “revocable” trusts will be, at time of death included in your estate for estate tax purposes, thus they offer no tax benefit except for any basis step ups.

Trusts for asset protection. The basis of the asset protection trust is simple enough: assets are conveyed out of your name and into the international trust. You designate the trustee, settlors and beneficiaries and you control the assets in the international trust for the benefit of those beneficiaries.

For more Trust protection, an offshore trust can be established in a foreign jurisdiction which has bank secrecy laws and no income, gift, or estate taxes. Some common jurisdictions used for offshore planning are the Cook Islands, Nevis, the Bahamas, and the Channel Islands. When you have an offshore asset protection plan, it ties the hands of the local judge. They do not have jurisdiction over foreign trustees. Plus, a legal opponent must then get through tremendous legal hurdles to threaten your wealth. Your assets are located in another jurisdiction. This means that if your legal enemy pursues them, they must pursue them in that jurisdiction and through its legal system. Now your legal enemy has to prepay often tens of thousands of dollars, to a committee just to review the case where the committee assesses if they will even allow their courts to hear the case.

This means that they first have to pay a sizable deposit, up to $100,000 in Nevis. Then they have to hire local representation and cannot have their attorneys work in the foreign jurisdiction. This is generally enough to deter most legal pursuits. However if the case does go to court, there is a statute of limitations. The case is either opened and closed in 2 years, or it is thrown out. These are huge legal hurdles to overcome and the time.  The costs and odds of winning are so steep that your assets are likely to avert the attack.

Limit what you “Publicly Own” There are legal tools that keep creditors for seizing what is yours. When you get sued personally, most assets in your name are vulnerable. Therefore, a good strategy is no tot hold non-exempt assets in your own name. Why? Because the first thing a contingent fee attorney does when thinking about suing you is to do an asset search. Own a car? Why not own it in a title holding trust to keep your name out of the public records? Own or might own rental property? Why not hold it in a land trust for privacy of ownership? Then you can hold the land trust in an LLC for lawsuit protection and asset protection.

If you have a sizable savings and investment accounts, it may be prudent to hold them in an asset protection trust where you have access thereto.

LLC’s. Real estate, rental properties, boats, and airplanes are all best held within an LLC to insulate owners and other valuable property from these risk-generating assets. With regard to real estate, you should consider holding title to your investment real estate in a limited liability company (LLC). An LLC will protect you against personal liability arising from claims against the underlying property, and it will protect your property from claims against you personally. For instance, if you cause a car accident and incur personal liability, your real estate LLC is insulated from such liability. Conversely, if a tenant of your real estate LLC wants to sue, he must sue the LLC. This creates two results: (1) it shelters your personal assets, such as

your savings accounts and your house from the tenant’s claims, and (2) it limits the tenant’s recovery to the value of the LLC itself. For this reason, LLC interests are one of the last interests that creditors will pursue for recovery.

Offshore LLC offer Privacy and Protection. First, there is no difference in the level of protection offered by an offshore corporation or an offshore LLC. They are equal in the eyes of the law. Offshore jurisdictions have always afforded them the same high levels of deference, and U.S. courts have generally maintained that a corporation is equivalent to an LLC for asset protection purposes. However, asset protection, privacy and taxation is in particular superior offshore. It is much more difficult to adjudicate offshore and for creditors it is nearly impossible. Moreover, there are taxation efficiencies as in the case of Nevis, among others, it is exempt from all local taxes including income tax and capital gain tax. Set up and operating is easy as in the case of Nevis, , among others, there are no statutory requirements for accounting audit, no annual Board Meeting, General Meeting, or reporting requirements. While we have discussed the advantages for asset protection in Nevis, it is good to reiterate that it is most difficult to pierce the LLC shell by a creditor and the like. Nevis is a great option for an offshore LLC.

Foundations: The Private Interest Foundation (PIF) finds its roots in the Principality of Liechtenstein, which in 1926 passed the law on Family Foundations for members of one or more families; and the law for Mixed Foundations, for family members, third parties and institutions.

The principal difference between a private foundation and an offshore company is that a foundation, generally speaking, cannot engage directly in commercial business activity, although it can own investments such as real estate, shares, bonds etc.

Private Interest Foundations can be useful for people who wish to control and maintain ownership of foreign corporations, Trusts, International Business Company (IBC) and LLC's but do not wish to have direct ownership of the corporation in order to avoid Controlled Foreign Corporation (CFC) rules in their home countries. High taxed countries such as the UK, Canada, USA, Australia, New Zealand, France, Italy, Spain, China, Taiwan, etc. have CFC rules that require citizens to disclose or report to the tax authorities any shares or interests they hold in foreign corporations. Thus, the PIF creates a vehicle that boasts both tax deferral and asset protection capabilities.

Using a PIF removes ownership from one's personal name and transfers ownership in the name of an entity that does not have owners. The privately appointed beneficiaries remain anonymous. Specific advantages of the PIF are:

Offshore Foundations and International LLC's and IBC's

  • Controlled by Trustee / Board of Directors;
  • No individual direct control, no direct bank account and no bank signatory;
  • Eliminates any Foreign Bank Account Reporting;
  • Eliminates any Foreign Account Tax Compliance Reporting Act;
  • Financial Privacy / Tax Minimization
  • Very strict privacy laws;
  • Nearly impossible for outsiders to determine the extent of income, $$, Assets, and how much tax is payable ;
  • Asset Protection
  • Offshore laws protect ownership privacy - makes it difficult for outsiders to determine asset ownership;
  • Very difficult and costly to sue, limits vulnerabilities;
  • Access to high return investments
  • Most very high return investments are offshore PPP's;
  • Wide variety of offshore high return investments programs - not available to onshore persons;

Offshoring Benefits

  • Protect family business by providing continuity to second and third generations;
  • Protect minors, disabled, incapable, or incompetent persons to manage their assets;
  • Manage payments or the distribution of assets to family members which provide for education, housing, maintenance, or profit sharing;
  • Conduct scientific, philanthropic, religious, humanitarian interests; and manage funds or assets benefiting these activities;
  • Manage profit sharing and employee pension plans;
  • Sophisticated and efficient substitute to the will;
  • Holding shares, dividends, or interests in private or public corporations;
  • Collect and hold royalties;
  • Invest in shares, bonds, mutual funds, bank deposits or other assets;
  • Hold real estate, or high-valued assets, such as art, or jewels;
  • Tax minimization (estate taxes and transference duties);
  • Protection against creditors, political instability, divorce, or forced heirship;
  • Allows a discreet and confidential way to create independent patrimonies for second or third families, children out of wedlock or beloved third parties;

In all issues such as these, it is critical for your Estate and Asset Protection Plan to consider a well-balanced onshore and offshore strategic plan. For more protection and sophistication there are often layers of LLCs, Trusts, International Business Companies, all owned by a single or multiple Foundations. For any level of Asset Protection, it all depends on the need and level of sophistication required, with respect to your situational short and long term needs and goals.

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