Asset protection starts with taking all of the necessary precautions, such as carrying auto and home owners insurance, and progressively building a wealth plan depending on the needs and preferences of the individual.
There is a myriad of options available to hold wealth that are protected from lawsuits and judgments (depending on your state); life insurance, homestead protection, retirement plans, etc. Although these options come with state and federal law protection, your capital is not as available or could come with penalties should you wish to access it. Additional home equity, maximum retirement account contributions and term life insurance is a form of protecting assets and should be considered in a strong financial plan.
Above and beyond these financial concepts are estate planning and asset protection vehicles that offer control and immediate access to your assets with strong protective features.
Dedicated Asset Protection Tools
Legal vehicles and business entities are designed to limit one’s liability and protect the assets and estate of individuals and families. These are various types of trusts, corporations, LLCs in most states and business-friendly foreign countries.
Incorporating a business using corporations and limited liability companies, limited partnerships and other business structures extend a great deal of personal liability protection and many tax advantages through business deductions.
Business entities shield the personal assets of the shareholders from the liability of the business through the corporate veil. By creating a separate legal person that conducts business, you alleviate the risk of exposing personal assets to any liability brought on from conducting business – the business structure must be established and operated properly in order maximize the asset protection benefits.
Trust instruments allow for property to be transferred to the trust by a trust settlor for the benefit of named trust beneficiaries. Trusts offer a variety of benefits and certain types of trust offer stronger asset protection features than others.
Asset protection trusts are special instruments whereby an individual can settle and fund a trust for the benefit of one’s self, using what’s called a self-settled spendthrift trust. These are the only true asset protection instruments where assets are held in a legal vehicle and can only be distributed for the named beneficiaries in the trust deed. Only a few states have statutes allowing for these types of trusts and they are relatively new in the United States. Several offshore jurisdictions are financial havens for asset protection through these types of trusts and have the strongest case law history of protecting assets from judgments and U.S. court orders.
The strongest asset protection plans will involve most of these tools and legal vehicles in a progressive manner, starting with maximizing insurance coverage and retirement contributions to incorporating a business, owning property through trusts and LLCs and finally an asset protection trust that locks in the most personal protection against nearly any form of legal attack.
These tools can be nested in order to combine the benefits of each to include multiple jurisdictions, domestic and foreign. When combining these legal vehicles it should be done with a qualified professional who can guide you through the process of choosing the right instrument in the proper jurisdiction for an individual’s goals and protection needs.