Protecting your assets against possible lawsuits, creditors, and other legal threats is an important step to take towards your financial security. Asset protection includes a variety of legal strategies designed to safeguard property from potential claims. Some of the most prevalent asset protection solutions include limited liability companies and offshore asset protection trusts. This article will discuss a variety of asset protection solutions and the relevant considerations that can help you determine what might be best for you.
If your asset protection plan will include an offshore component (and it probably should), then there are additional options when it comes to selecting a jurisdiction. This could be Belize, Nevis, the Cook Islands, or other country that will serve as the base for your offshore plan. With so many possible alternatives, it might seem complicated to figure out what is right for you. The good news is that finding the right asset protection plan for you can be made easy by working with an experienced asset protection attorney.
Think Like an Asset Protection Attorney
When beginning an evaluation of your legal needs, an asset protection attorney may begin by asking these three simple questions:
- What are your assets?
- What are your risks?
- What is your risk tolerance?
You can begin to perform this simple analysis yourself to give you an idea of where you stand. The first question, determining your amount of assets should be simple enough. However, this is not simply a matter of your net worth, rather an exploration of what assets make up your net worth. Different assets come with different risk profiles. It is not the same to have two million dollars spread across multiple rental properties, for example, or tied up in a closely held business, or sitting in the bank in cash or mutual funds or cryptocurrency.
This leads us to the second question, what are your risks. This question is a bit more complicated as risks can come from a variety of unexpected sources. Risks can be part and parcel of your profession for example, if you are a physician, small business owner, or real estate investor. Risk can also come from your lifestyle, the assets you own, or even from your family members, such as teenage children driving in your cars. Additionally, risk can also come from unexpected places which makes it a difficult factor to assess.
Finally, you can ask yourself about risk tolerance. This is an entirely subjective question and so it will change from person to person. In fact, your risk tolerance will most likely vary even throughout your life. You might have been fearless during your early adulthood when your net worth was much smaller, certainly that is a common occurrence. But most people progressively grow more risk averse as their assets grow and their age advances. Being older also means that it might be harder or impossible to recover from a heavy financial setback simply due to your working years being mostly behind you.
Asset Protection Options
The answers to these questions then lead us to the next step: considering the range of legal solutions that are available for you.
The most simple, versatile asset protection entity is the limited liability company. In fact, you might already have formed one if you have ever been self-employed or founded a startup. However, the LLC on its own will rarely be enough to provide adequate asset protection unless your net worth is fairly low and your legal risks almost non-existent. For those who like the simplicity and versatility of the LLC but are looking for a higher level of asset protection may want to consider an offshore LLC.
An offshore LLC is simply a company that is registered under the laws of an offshore jurisdiction such as Nevis. Unlike a traditional LLC set up within the United States, an offshore LLC can provide superior protection thanks to the more favorable laws of the foreign jurisdiction. Trying to go after a foreign LLC also entails additional legal costs and risks for the plaintiff. Offshore LLCs are often established in countries with better asset protection laws such as Nevis.
Next you have the asset protection trusts. These tend to offer a much higher level of legal protection than an LLC. Much like LLCs, asset protection trusts can be established in the U.S. or abroad. While domestic trusts generally come with slightly lower fees, the amount of protection they offer tends to be much lower. A trust that is established in any U.S. state will invariably be subject to the jurisdiction of a U.S. court, which is a substantial drawback to any U.S. trust.
Offshore asset protection trusts on the other hand, provide the highest level of protection. Since they are established and managed in a foreign jurisdiction, they stand outside of the reach of U.S. courts. That means a plaintiff will need to bring their lawsuit to a distant country to try and reach the trust assets. In addition, the best offshore jurisdictions also have more protective legislation in place that make it much harder to win a case.
For decades, offshore asset protection trusts have been available to U.S. citizens to protect them from the risks of legal claims and frivolous litigation. These trusts have a solid track record of protecting wealth, preserving a family legacy, and allowing for more favorable settlements when necessary. In this context, countries such as Belize, Nevis, and the Cook Islands really stand out by the increased hurdles set out in their laws to help prevent unwarranted lawsuits. These jurisdictions have very developed offshore services and the best professional trustee companies in the world.
Different legal solutions work for singular people, but also for different kinds of assets. You might want to leave some assets in the U.S. such as retirement accounts, while moving individually held cash, cryptocurrency, and securities abroad. Business assets should often also be treated differently from your personal wealth. If you are married, then you might want to decide how to plan around jointly held assets such as real estate.
Selecting the Right Plan
Based on the information above, you might already be leaning towards one option or another. If you have a larger net worth a higher level of risk, or have a lower risk tolerance regarding legal threats, then some form of offshore asset protection might be the better choice. Offshore asset protection solutions are more sophisticated and offer much higher protection. While this type of planning might sound complex, with the help of the right legal team, it can be easier than you think.
Offshore asset protection trusts work by transferring funds to a foreign bank account, often located in a financial safe haven such as Switzerland. This has the added benefit or also providing a level of international diversification to your wealth. Naturally, some assets such as U.S. based real estate cannot be moved abroad, but using some innovative legal strategies it can be possible to protect your equity in real estate using an offshore trust. Offshore asset protection trusts can also work together with offshore LLCs to create a formidable legal stronghold.
An offshore asset protection trust or an offshore LLC and foreign bank account can provide the most powerful level of asset protection against potential legal threats. In addition to their legal protection, offshore legal entities also often have increased privacy. Keeping wealth beyond the reach of prying eyes can be an important component to keeping your assets safe. After all, a plaintiff attorney is less likely to come after you if they believe you are close to insolvent.
One important consideration to any asset protection plan is to act quickly. Unfortunately, many people attempt to jump into asset protection only once something happened that might give rise to a claim. While understandable, this is far from ideal. The best time to think about asset protection is now, when things are calm and well before a claim materializes. Regardless of what legal solution you want to establish, the situation always gets much more complicated when the threat of a lawsuit is already on the horizon.
Another important aspect of an asset protection plan is finding the right balance between protection and control of your assets. The asset protection solutions discussed in this article work by providing a degree of legal separation between you and your assets. Generally, the better levels of protection require giving up a bit more control to offshore trustees. The balance lies in finding a level of legal separation that will be respected by the courts but at the same time something you are comfortable with.
Working with a Trusted Advisor
As this article has discussed, essentially anyone can benefit from some form of asset protection planning. Asset protection can be a complicated area of the law and putting together an effective plan requires specialized legal knowledge. Working with an experienced attorney can help you find the right solution and make sure that you have a good understanding of how your plan works. Moreover, an attorney can also help identify risk factors that you might have overlooked in your own initial analysis.
If you would like to learn more about the legal asset protection solutions discussed in this article, of if you have any questions regarding your own asset protection needs, please contact Blake Harris Law. Blake Harris Law focuses exclusively on asset protection and has successfully helped clients throughout the world with their asset protection needs. You can reach us out through our contact page.