What Is Asset Protection?Asset protection is a broad term that includes various legal strategies for shielding your property against claims and lawsuits. The homestead exemption, which protects family residences against property taxes and creditors, is an example of a state-mandated asset shield with rules that differ between states. Another example of asset protection is establishing a limited liability company, which keeps your personal assets separate from business property and protects you from creditors in case your business runs into debt.
Why You Should Consider Asset Protection?A thorough asset protection plan can help you:
- Protect property from creditor claims. Once you transfer property to an asset protection trust, the trust acts as a separate legal entity that owns the assets. The trust property remains out of your creditors’ reach.
- Reduce liability for business debts. The right business structure limits your personal liability for claims on your company. If your business runs into difficulties, business debts won’t impact your credit score or jeopardize your personal assets.
- Defend against professional lawsuits. If you work in medicine, law, engineering, or another high-liability field, a major lawsuit could outrun the scope of your professional liability insurance. We can suggest asset protection tools that safeguard your property against professional lawsuits.
- Provide for your family. You want to protect your estate from creditors to make sure you give as much as possible to your family, both during and after your lifetime. Offshore and domestic trust can help you provide for your loved ones.
- Preserve your financial security. A comprehensive asset protection strategy can help you stay afloat in difficult situations like divorce or bankruptcy. Plan ahead to make sure you have a reliable asset protection plan in place when the unexpected happens.
Why work with Blake?
Attorney Blake Harris is passionate about helping you protect your assets from lawsuits. Before founding Blake Harris Law, Blake worked for one of the largest wealth management firms in the United States, where he helped high- and ultra-high-net-worth clients protect their personal assets. Since then, Blake has gained extensive experience in all areas of asset protection and has assisted clients worldwide with asset protection planning.
Over the years, Blake has built and continues to nurture a vast network of legal and finance professionals in countries such as Belize, the Cayman Islands, the Cook Islands, Lichtenstein, New Zealand, Panama, St. Kitts and Nevis, and Switzerland. Blake’s knowledge, experience, and connections enable him to handle even the most complex and sensitive asset protection issues that other attorneys find challenging or are unwilling to to represent. Whether you are looking to set up an offshore trust, establish a foreign limited liability company, or protect your digital assets, Blake will work hard to protect your wealth.
Why is Asset Protection necessary?
It is unfortunate that we live in such a litigious society where a person is never more than one mistake away from having everything that he/she has worked for put at risk in a lawsuit. Alternatively, creditors can come and try to take away assets for various reasons. Given the volatility of business fortunes, people occasionally make mistakes that can potentially threaten their long-term financial future.
When your insurance has policy limits or will not cover claims filed against you, it will be your assets that are at risk in a lawsuit. When someone obtains a judgment against you, it will be your assets that they are able to come after to satisfy the judgment. While some categories of assets are off limits to judgment holders, almost everything else is fair game. This means that what you have could become what they have with a few strokes of the pen.
If you work in a profession that is prone to lawsuits, this is even more of a risk for you. For example, if you have a professional practice, your malpractice insurance may only provide so much protection. Similarly, if you are starting a business and have to guarantee your loans, you may also be at risk of losing your assets if things do not work out as you hope.
Asset protection means that things do not have to be this way, and you do not need to place yourself at the same degree of risk. Through various proactive steps that you can take ahead of time, you can build a proverbial fence around most of your assets to keep them out of the hands of creditors and judgment holders. Once a case goes to court, you have little to no control over the outcome and whether everything you have worked for will be threatened. Asset protection is advisable to give you peace of mind.
What does it mean to protect your assets?
Protecting your assets means that you preserve them for both your personal use and for the use of your family in later generations. Asset protection means that you have taken any of a number of possible steps to either change the form of ownership of the assets or the location of ownership in order to make it difficult for creditors or judgment holders to reach your property. These are the various structures that you can establish to either create some separation between you and your assets or to move them into entities that limit your amount of liability. Asset protection is the process of rearranging your financial affairs to put you in a better position to survive a lawsuit than you would have been without such planning.
While there are no guarantees in the practice of law, proper planning can give you much greater peace of mind that your assets will remain secure if ever threatened. When done effectively, asset protection greatly limits the amount of assets that judgment holders can get from you. It is important to remember that asset protection steps must be taken within the confines of the law and are completely legal so long as they are done properly.
When protecting your assets, your attorney will scrutinize the laws of various states and offshore jurisdictions to form a strategy for where to hold your assets and who should exercise control over them. Asset protection makes as many of your assets as unreachable as possible. Thus, even if you transfer control of your assets to someone else, you still benefit from them, but no one else can without your consent.
What do you want to protect?
After a lifetime of work, you will hopefully have a number of different assets and properties you will want to keep safe from creditors using asset protection. To devise the strongest possible asset protection strategy, it is helpful to know ahead of time exactly what you want to protect. Then, working with an asset protection attorney, you want to figure out which of these assets are already protected by law and which assets you need to take steps to protect.
The good news is that in many states, one of the most important assets of all—your home—may already receive some degree of protection from creditors due to homestead exemptions. Hopefully, you have other assets in your portfolio besides your home. For example, you may have other investments, including stock market investments and cryptocurrency, that do not fall under any exemption.
Since your bank accounts are one of the first things creditors will go after, you need to find a way to move the money from your bank account into another legal instrument. While liquid assets are among the easiest things for creditors to attach, they are also the easiest to protect. Hard assets, such as real estate, are slightly more difficult to access, but they are still not off limits for creditors, so you must find a way to structure the ownership of these hard assets to keep them protected from lawsuits.
You may also want to protect your retirement accounts or the assets you have saved for that stage in your life. Some states have statutory protections for retirement assets, but when it comes to bankruptcy proceedings, there is a limit on the amount of assets that are protected. Working with an asset protection attorney can help you devise a strategy to give the highest amount of protection to the most assets possible.
How does Asset Protection work?
The first step in the asset protection process is finding an attorney who specializes in the field. While you may be tempted to do it yourself to save money, this is an area where you need to do everything right. If your asset protection strategy is based on false assumptions or if someone has made an error, you may be unprotected when you previously thought your assets were safe. You want to find an attorney who understands the complexities that come with creating an asset protection plan and who focuses on asset protection.
When you retain Asset Protection Attorney Blake Harris of Blake Harris Law, he will guide you through the process of creating and using various asset protection tools for safeguarding your wealth. Blake will take the time to listen to you while applying his professional expertise to your situation and answering any questions you may have. Blake has extensive experience with asset protection planning.
Once Blake has spoken with you and understands what you are trying to accomplish, he will recommend an asset protection strategy for you. This may involve moving assets to certain places or creating various trusts to hold some of your assets. In consultation with Blake, you will have to decide what you are comfortable with in terms of domestic and offshore asset protection options.
Asset protection may involve executing a range of legal documents that transfer decision-making power over some of your assets to trustees. It may include steps to create various corporate entities and transferring your assets to these entities because of the protections they provide. Then, you may need to shift other financial assets into certain accounts that are protected from creditors. For example, some states may have absolute protections for retirement accounts as well as other safeguards for other types of annuities that provide you with an income. The most important thing to remember is that the further in advance of a lawsuit that you implement your asset protection plan, the stronger the protection you receive over your assets.
Asset Protection Strategies
Asset protection can be done successfully using a number of different strategies. There is no one overarching way to protect your assets. Instead, you will need to complete many different steps as part of an overall strategy. The first step toward asset protection generally involves purchasing insurance that can provide you with a relatively wide degree of protection. However, the mistake that many people make is to stop after simply purchasing a policy. Insurance does not always protect you to the extent you need and when you require it. As a result, you need other tactics. There are several different moves (described below) that can be considered forms of asset protection.
You can create a limited liability corporation for a business or to hold property. Then, your liability extends only to the LLC’s property, and you are not responsible for anything else beyond that. Some people create LLCs specifically to own property. Others create a structure of multiple LLCs to further minimize risk.
Another asset protection strategy is to create a trust. In this case, you transfer property to the trust, which is under the control of a trustee. Trusts can be either onshore or offshore. There is generally a greater degree of protection for offshore trusts. The trust essentially becomes an identity separate from the grantor since it is a new structure with control that is separate and distinct from the person who has beneficial ownership of the assets.
Additionally, you can move some of your assets into accounts that enjoy statutory protections from creditors. For example, retirement accounts are protected to a degree from judgment creditors in some states (but not necessarily from bankruptcy court above a certain amount). Further, some annuities and life insurance policies are protected provided they are for the benefit of the person who is seeking to shield his/her property.
Can a Trust protect assets from a lawsuit?
A trust is a legal instrument, so, naturally, the answer to this question is it depends. When structured the right way and in the proper time frame, a trust should provide you with asset protection from lawsuits and creditors. Importantly, the trust must be designed in such a way that there is separation between you and the assets. In most cases, this means you need to transfer some degree of control over the assets to a trustee even while you maintain beneficial ownership. If you retain direct power to control your assets, the courts will likely find your trust instrument to be a legal fiction. A successful trust depends on creating some degree of separation between you and the trust assets.
The most important aspect of a trust that will provide you with legal protection of your assets is that the trust is irrevocable. This does not necessarily mean the trust cannot be undone or modified. Rather, trust assets would be unreachable by creditors since they would not really be taking them from you. When a trust is revocable, creditors can still reach it because you have the direct power to undo the trust and take back the assets. Even if you are the beneficiary of the irrevocable trust, it is the transfer of control of the assets to the trustee that legally separates you from your assets. Exactly how much protection is provided by a trust depends on the law of the jurisdiction where it was established. Some attorneys advise you to establish a trust in certain overseas jurisdictions since it is nearly impossible for creditors to reach assets held there.
Frequently Asked Questions
Regarding Asset Protection
The first thing you need to do when looking for an asset protection attorney is to pay close attention to the attorney’s experience. You do not want a legal generalist because he/she may not know the intricacies of asset protection. Asset protection is so much more than technical proficiency; it is a craft. Instead, you want someone with dedicated experience in the area along with knowledge of the various areas that asset protection law touches upon. In addition, you want to work with someone who has experience working with both high-net-worth individuals as well as people of average means who are looking to protect their assets.
It is best to look around among several different attorneys before settling on one asset protection attorney. You should find multiple attorneys and interview them to get a sense of how they would work with you. Talk to each attorney to understand how they would help protect your assets. While asset protection strategies are not a protracted matter like litigation, chemistry with your attorney is also important because you must revisit and adjust your plan whenever circumstances change.
You want to pay close attention to the attorney’s credentials. Signs that the attorney’s credentials are good include writing and speaking on the subject of asset protection. These are signals that the attorney is respected by his/her peers. You also want to examine the attorney’s online reviews. While you will not be able to know exactly which clients the attorney has worked with, you should pay close attention to the type of clients the attorney has.
Trust protectors play a very important role when it comes to asset protection. When you move your assets into a trust, you transfer some of the ability to make decisions about the assets. If you were able to control your assets, a court would look at the trust as an extension of you.
The trust protector may not necessarily make the decisions that the trustee makes, but they will have critical duties and responsibilities. First, the role of the trust protector is not the same in every trust. In some trusts, the trust protector has more of an administrative role. In other trusts, the trust protector generally oversees what the trustee does which includes the power to remove the trustee, if necessary. This power to supervise includes the ability to veto investment decisions and other choices made by the trustee. They can even modify the terms of the trust.
There are several different possibilities for deciding who can be the trust protector. One choice could mean that it is someone not necessarily connected with the grantor, but who has the specialized knowledge that would enable them to take on these responsibilities. Another choice would be installing someone who is close with the grantor and the family and could make decisions with knowledge of what the grantor’s wishes are. One requirement is that the trust protector not have any existing interest in the trust. In any event, the person named to this critical position in the trust should be comfortable with taking on these responsibilities and be someone who is able to make sound decisions.
Your real estate assets may be at risk in a lawsuit, requiring you to take steps to ensure that it cannot be taken away from you even if there is a judgment against you. When it comes to real estate, one of the effective ways to make it more difficult to collect is to move it into a holding company. The holding company will have ownership of the property and there will be steps taken to make sure that the holding company is separate and distinct from you.
Typically, the holding company will be some form of LLC. You can create a structure of multiple interconnected LLCs to provide increased protection. LLCs can be structured in a way that can make it more difficult for creditors or judgment holders to be able to find your assets. When each property is its own LLC, it increases the amount of separation between your personal assets and your real estate property.
Another possible solution is holding your land in trust. When you move property into an LLC, there is a chance that it can still be taken in a lawsuit. An asset protection trust is an additional step that you should consider taking when moving your property to an LLC. This solution is essentially a trust on top of an LLC. When these are established, it becomes more difficult for a creditor to take your property.
The number of people who would seek to try to take your assets from you are numerous. You never know what can happen during your daily activities that could cause you to be on the hook for a massive legal judgment that could wipe out everything that you have worked so hard to save. You could be at fault for a major car accident on the way to work and be on the hook for a massive judgment that goes beyond your insurance coverage.
You could be subject to significant liability based on what you do for a living. For example, doctors routinely face malpractice lawsuits and some of the judgments can be staggering. There could be various other creditors that could have the right to attach your assets. You could also rack up liabilities from your business and be on the hook when creditors come to collect if you do not have the right protection.
Really, anyone who is worth more than a few hundred thousand dollars should be worried about threats to their assets. This can even be in the form of a divorce when one spouse brings assets into the marriage. The truth is that you cannot even anticipate all of the threats and once a threat materializes, it may be too late to do anything to protect your assets. Sometimes, it is the threat that you do not see that is the one that leads you to financial ruin. Therefore, it is best to be prepared for any type of threat no matter what it is.
Protecting your assets involves many different steps that you will take to prevent financial catastrophe from befalling you and your family. It will involve thinking ahead of time about the possible threats that you may face and the ways in which your assets may become vulnerable in a lawsuit or to a creditor. It should involve speaking with an asset protection attorney in order to catalogue the potential issues that could await you and devising a strategy to make sure that a lawsuit does not take your hard-earned assets.
Once you have figured out where you may be vulnerable, you will likely need a multi-faceted strategy to protect yourself. One of the first things that you should do is to look at what type of insurance you could purchase. However, insurance alone is not enough to protect your fortune because of exclusions and coverage limits that still leave you vulnerable. You will likely need to look into where you can move assets that you do not necessarily need to control. By consulting with an asset protection attorney, you can devise a strategy that involves trusts and other corporate forms that limit your liability.
The key is to move assets where potential claimants and creditors cannot reach them. An asset protection attorney will help you work within the law to accomplish this. Make sure that a lawsuit does not wipe you out by limiting the property that someone could reach. Take maximum advantage of any exemptions that are allowed by law as well as any arrangements that let you protect your property.
Asset Protection Glossary
Here are some important terms to learn when it comes to asset protection:
- Fraudulent ConveyanceEssentially, this is why you want to set up your asset protection strategy ahead of time because if you move an asset in an attempt to avoid a judgment or impede a creditor, it is fraudulent. The court will disallow the transfer, and your property will be at risk.
- Offshore Asset Protection Trust There are certain countries that have structured their laws to make it very difficult for creditors to reach assets held there. With this type of trust, you establish the trust in a foreign country, and the assets are placed offshore. The assets are held overseas and controlled from there, and they are subject to the laws of the foreign jurisdiction.
- Limited Liability Company This is a corporate form that generally provides some level of asset protection. An owner of an LLC is usually not personally liable for the debts of the LLC. The only thing that creditors can theoretically reach is the property of the LLC itself. Forming an LLC is a way to reduce the chances of your business liabilities threatening your entire net worth.