The importance of asset protection planning and your options

Whether you are an individual or a business owner, it is important for you to consider asset protection. In today’s world, it is important to take steps to protect your assets from litigious parties. Lawsuits are increasingly common, and it is important that you take steps to place your assets out of the reach of potential judgment creditors. Asset protection may be completed either domestically or internationally, and it is important that you take the necessary steps long before you have a potential judgment creditor on your horizon.

What is asset protection planning?

Asset protection planning involves taking your assets and placing them out of the reach of potential vexatious litigants or other judgment creditors. This may be done by creating domestic or international trusts. Understanding which type is more appropriate for you or your business is important, and setting up the resulting trusts must be done in such a way that it comports with the requirements of the Internal Revenue Service and of foreign governments if you choose to establish an international asset protection trust.

Domestic vs. international asset protection

Domestic asset protection trusts are tools that you can use to protect your domestic assets from the reach of creditors. There are a number of U.S. states that allow the creation of domestic asset protection trusts, including:

  • Wyoming
  • Virginia
  • Utah
  • Tennessee
  • South Dakota
  • Rhode Island
  • Oklahoma
  • New Hampshire
  • Nevada
  • Missouri
  • Hawaii
  • Delaware
  • Alaska

When domestic asset protection trusts are properly established in one of these states, the creditors will be unable to touch any of the assets that have been used to fund the trusts. Creditors will be unable to reach into the trust after a specified period of time has elapsed. In Nevada, for example, assets that have been owned by the domestic asset protection trust for two years or longer are beyond the reach of creditors.

Some individuals and businesses are better served by international asset protection trusts. Creditors around the U.S. have been challenging them, and some judges are allowing creditors to reach into these trusts in an effort to protect creditors’ rights. Foreign asset trusts are formed in other countries and are controlled by the laws in the countries in which they are created.

Benefits of foreign asset protection trusts There are several benefits afforded by creating international asset protection trusts instead of domestic asset protection trusts. Some countries do not recognize judgments from U.S. courts, meaning that they do not give the decisions that are issued in the U.S. full faith and credit. By contrast, U.S. courts are required to recognize the judgments that are issued by courts located in other U.S. jurisdictions, meaning that it is possible for creditors to pierce the veil of protection that is created by the domestic protection trust. Foreign asset trusts also offer a higher degree of privacy than do those that are created within the U.S. Finally, if you establish an international asset protection trust and hold the assets contained in it offshore, they are less susceptible to seizures by your creditors. International asset protection plans also offer you diversification. If your lawsuit exposure risk exists within the U.S. only, a good international asset protection plan may allow you the ability to transfer your assets overseas in order to protect them quickly and legally.

Portable asset protection plans It is possible to create a portable plan that starts in the U.S. but may later be transferred internationally. Portable plans may initially exist within the U.S. but have provisions included within them that legally allow you to transfer your assets offshore at a later date. If they are set up correctly by the consultants at CS&P, a triggering event such as a lawsuit can result in your being able to quickly transfer your assets to a foreign location in which they cannot be touched. The most popular countries for foreign asset protection trusts include Nevis, the Cook Islands and Belize because these three countries do not recognize U.S. court decisions.

Mistakes to avoid Commonly, businesses and individuals do not think about asset protection until it is too late. They may wait until a lawsuit is already filed against them before they start trying to protect their assets. Plaintiffs may then argue that transfers that are made after the lawsuits are filed are fraudulent transfers. If courts rule that they were, then the defendants may be ordered to turn over the assets that they have transferred to the trusts. This makes it highly important to take the steps necessary to protect your assets before a lawsuit is ever filed. These trusts can also protect your foreign investments from the reach of creditors overseas in the countries in which you have them.

Choosing appropriate legal entity structures for protection In addition to domestic and international asset protection trusts, it is important for you to understand the different types of legal entity structures that are available to you if you have your own business. If you are doing business as a sole proprietor and your company is sued, the creditors will be able to reach the assets of both your business as well as your own personal assets. At a minimum, choosing a limited liability company or limited liability partnership may help to protect your personal assets from creditors if your business is sued. S-corporations and C-corporations may offer added layers of protection. Your professional consultant at CS&P may review your business and recommend the most appropriate type of legal entity structure for your particular needs.

Asset protection planning is vitally important for both individuals and businesses. It can be effective in shielding your assets from litigants, creditors and others. It is important that you do not wait until you think that you are in danger of being sued. The professionals at CS&P may help you to establish the most appropriate trust to protect your assets so that they will be separated from your risk.

Contact us for a free initial consultation.