Many people spend a huge percentage of their lives working to build wealth. Unfortunately, very few people put any thought into protecting what they’ve worked so hard to earn. Those who do think about safeguarding their assets rarely know where to start.
To help you better understand how you can defend your wealth, we’ve put together a short guide outlining asset protection for beginners. After reading this, you’ll have a grasp on some wealth defense basics and can take the first steps toward starting an asset protection plan.
Asset Protection Basics
Asset protection is the act of using various tools, such as trusts, insurance, and corporate structures, to place your assets beyond the reach of creditors and other threats. An effective asset protection plan can prevent you from having to declare bankruptcy after losing a lawsuit.
Asset Protection Planning: Essential Details
Here are a few essential details that can help you understand how to design a more effective strategy:
- Asset protection planning requires a professional: Setting up an asset protection plan isn’t as simple as buying an insurance policy or opening up a bank account. To ensure your strategy meets legal requirements and can adequately defend against threats, work with a professional. Experts like Asset Protection Planners have spent decades developing a keen understanding of wealth defense strategies and tools, and can use them in a targeted fashion to guard against specific threats.
- Asset protection planning should occur before a lawsuit surfaces: Asset protection plans work best when they’re developed before a legal threat emerges. The longer a plan is in place, the less likely a lawyer will be able to poke holes in it. Plus, setting up an asset protection strategy takes time. A plan that’s set up to deal with an ongoing lawsuit might not be ready in time to defend your assets against a disadvantageous judgment.
- Local laws have a significant impact on your plan’s construction: The tools and strategies that make up your asset protection plan will vary based on where you live. For example, in some states, domestic asset protection trusts aren’t even an option. To mitigate the difficulties of navigating local laws, many asset protection planners prefer to use offshore tools.
Common Threats to Your Assets
In an ideal world, you wouldn’t need to start an asset protection plan because there would be no risk of suddenly losing your wealth. Sadly, we happen to live in a world where all the following pose a serious threat to your finances:
Lawsuits
Lawsuits are the biggest threat to your wealth. One can happen at any time and for countless reasons; even something as insignificant as a minor fender-bender could cause you to lose thousands of dollars in court. Most asset protection strategies are designed to protect against lawsuits.
Divorce
When you marry someone, any assets that you earn, purchase, or otherwise acquire belong to both parties. During a divorce, your assets can end up split evenly between you and your former spouse, even if you were the primary earner during your time together. Furthermore, ex-spouses belong to a class of creditors known as “exception creditors.” People belonging to this class can breach some asset protection defense tools. Thus, few domestic tools are effective in a divorce. That is why we commonly employ offshore trust strategies.
Debt
Falling into debt and then being unable to pay it off puts everything you own at risk. If your debts go unpaid for long enough, your lender can sue you to make back some portion of their investment. Should their lawsuit succeed, you can be ordered to sell your possessions, your house, and even relinquish ownership of your businesses.
Business Disputes
When things go wrong in a business, your partners and vendors might take it personally and file a lawsuit against you. If you don’t have an asset protection plan in place, the impacts of this lawsuit can affect your business and personal accounts.
Popular Asset Protection Tools
To defend against the above dangers, asset protection planners use a variety of legal, corporate, and financial tools, including:
Retirement Plans
Many retirement plans, particularly those covered by the Employee Retirement Income Security Act (ERISA), receive protection from the federal government. Thanks to federal protections, creditors have a difficult time getting their hands on assets in these accounts. Unfortunately, though, even the best retirement accounts don’t provide the level of protection that other tools do. For example, some exemption creditors (such as ex-spouses) can breach these accounts and lay claim to the wealth they contain.
Land Trusts
Land trusts are popular tools for keeping real estate holdings hidden from creditors and contingency-fee lawyers. When a person creates a land trust and places their property in it, the trust itself appears as the property owner in a public records search. As a result, creditors have a difficult time tracing the property back to the actual owner, which discourages frivolous lawsuits against the property owner.
Company Structures
Companies, particularly limited liability companies (LLCs), effectively draw a line between personal and company property. If a member of the company is sued privately, the business structure prevents the creditor from coming after any of the assets owned by the business. Likewise, if the company is sued, the plaintiff cannot go after the personal assets of any company members. Company structures can also be used in tandem with other asset protection tools, like asset protection trusts, to enhance the flexibility and efficacy of an asset protection strategy.
Offshore Asset Protection Trusts
Offshore asset protection trusts are a type of trust that is specifically designed to keep assets away from creditors. These trusts are based in offshore jurisdictions with laws that favor trustees instead of creditors. Additionally, because these trusts are set up offshore, they are not beholden to U.S. court rulings.
Annuities and Life Insurance
Annuities and life insurance offer some protection, but have poor rates of return. State law also dictates whether or not annuities or life insurance are protected. In some states, the cash surrender values of life insurance, as well as earnings from an annuity contract, are protected. However, some states offer no protection.
Asset Protection Isn’t About Taxes
Before we conclude, we want to be clear that asset protection planning is not about minimizing your tax contributions. Anyone who says otherwise is liable to land you and themselves in serious legal trouble. Asset protection is a field that exists solely to defend your wealth from creditors and other legal threats.
Set Up Your Plan with Help from Asset Protection Planners
If you’re worried about the dangers facing your wealth and want to rest easy knowing your assets are protected, we’re here to help! The team at Asset Protection Planners has set up offshore trusts and developed powerful wealth defense strategies for decades.
Fill out the form below to schedule a free consultation with one of our team members.
