Since the launch of Bitcoin (BTC) in 2009, cryptocurrency has gone from a niche interest to a mainstream investment. Now, it’s a major piece of countless portfolios, and some people have used a well-timed crypto investment to massively increase their net worth.
However, the world of crypto isn’t all roses. Like any investment, cryptocurrency is vulnerable to various threats, including lawsuits and creditors. Unfortunately, countless crypto investors are misinformed about how these assets work and believe that they have a natural defense against these all-too-common threats.
In this article, we’ll show how asset protection for cryptocurrency works and expose misinformation about the natural defenses these assets have:
- Why Crypto Needs Asset Protection
- How Do I Protect My Crypto Assets?
- What Is an Offshore Asset Protection Trust?
- Other Types of Asset Protection for Cryptocurrency
- Asset Protection for Cryptocurrency FAQ
Why Crypto Needs Asset Protection
When cryptocurrency was new, many people believed it was untraceable and impossible to tie to the person using or holding it. While it’s true that transactions along the blockchain don’t work the same as traditional credit and debit transactions do, cryptocurrency itself is just as discoverable as any asset. In fact, the non-fungibility of blockchain records may make it even easier to link to a specific individual.
The truth of cryptocurrency is that, as an asset class, it’s almost identical to a stock or bond investment. And just like those, it’s vulnerable to seizure by a judgment creditor. Luckily, the similarities that Bitcoin and other cryptocurrencies have to investments also make them easy to protect. In fact, asset protection for cryptocurrency is virtually identical to any other form of asset protection.
How Do I Protect My Crypto Assets?
The best way to keep your cryptocurrency safe is to hire an asset protection planner. These professionals will take a comprehensive look at your holdings, crypto and otherwise, to determine the best wealth defense strategy possible. In many cases, they’ll recommend setting up an offshore asset protection trust.
What Is an Offshore Asset Protection Trust?
An offshore asset protection trust (OAPT) is a legal entity based outside of the United States, often in a place like the Cook Islands, Nevis, or Belize, that retains ownership of any assets you wish to keep safe from creditors. When used to protect cryptocurrency, they are sometimes called crypto asset protection trusts.
The main advantage of an OAPT is that they aren’t bound by U.S. law. If someone sues you in the United States and wins a judgment against you, they cannot then go to your trustee overseas and demand that they turn over your assets. Any creditors who attempt to do that will be turned away and forced to re-try their case in an overseas court.
These trusts can hold virtually any type of asset, including crypto, and the trustees in charge of them are legally bound to act in your best interests.
Some other key features of offshore asset protection trusts include:
- Trustees of OAPTs must follow strict anti-money laundering and digital asset regulations. This ensures that your trust is viewed as legitimate by both U.S. and overseas courts.
- OAPTs can be combined with LLC “wrappers,” which let you control certain aspects of your trust without risking the appearance of direct ownership.
- Trustees usually secure your private keys, handle wallet backups, and can work with top digital asset custodians to keep your crypto safe from not only creditors but also hackers.
If you choose to create an offshore asset protection trust to guard your cryptocurrency, make sure to enlist the help of an asset protection planner. These trusts must be set up carefully to secure your assets. Additionally, an asset protection planner can help you set up your trust in a way that allows you to continue trading to keep capitalizing on crypto market dips and surges.
Other Types of Asset Protection for Cryptocurrency
Protecting your cryptocurrency from creditors is a must, but that’s not the only threat to your digital assets. Hackers, thieves, and malicious actors online pose a major threat to your cryptocurrency wallet. To make it harder for these cybercriminals, consider taking some of the following safety measures:
- Cold wallets and hardware wallets: Cryptocurrency wallets are usually stored online, where they can be broken into by anyone who obtains your password. Cold wallets and hardware wallets prevent this from happening by constantly generating new keys and pins, so your “password” is never the same. Hardware wallets are also fully offline, so anyone aspiring to break into one would have to steal it from your person and then obtain the correct key before it changes.
- Multi-signature wallets: This method of asset protection for cryptocurrency requires multiple people to approve a transfer. If someone manages to get access to your password and wallet and tries to drain your account, the other managers can step in to stop the transfer.
- Regulated digital custodians: These are third-party financial institutions that manage people’s cryptocurrency portfolios using cold, hardware, and multi-signature wallets. They are overseen by the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC) and must be licensed.
Keep in mind that none of the above tools and services provide asset protection against creditors and lawsuits. However, it’s always a good idea to do whatever you can to keep your crypto from being stolen.
Keep Your Cryptocurrency Safe With Help From Asset Protection Planners
Your cryptocurrency investments have the potential to be the most valuable and lucrative piece of your portfolio. Don’t risk having such a vital investment taken away from you by an aggressive creditor or attorney. Instead, call Asset Protection Planners. We’ll walk you through the ever-changing world of asset protection for cryptocurrency and set up a trust that can keep your digital wealth safe.
Contact us to establish a crypto asset protection trust today!
Asset Protection for Cryptocurrency FAQ
How can I protect digital assets like cryptocurrency from lawsuits and creditors?
Asset protection for cryptocurrency requires investors to do more than rely on the natural advantages of blockchain technology and digital assets. While many believe that popular currencies like Bitcoin and Ethereum are inherently secure, these assets are still vulnerable to lawsuits and creditors. Thankfully, the same time-tested methods of asset protection that people use for traditional investments also work for crypto.
The best way to carry out asset protection for cryptocurrency is to establish an offshore asset protection trust. This should be done by a professional asset protection planner or attorney who is familiar with offshore trusts. These trusts are excellent at protecting crypto and other assets because they are immune to U.S. court rulings. Even if someone wins a lawsuit against you in the United States, they will not be able to claim anything within your trust.
Not only are these trusts extremely effective at keeping your wealth out of creditors’ hands, but they’re also flexible. As a crypto investor, you know how important it is to make frequent trades that capitalize on the ever-fluctuating prices of popular cryptocurrencies. Unfortunately, a traditional asset protection trust doesn’t allow you to make trades, as it requires you to relinquish ownership of your assets. However, an offshore asset protection trust can be structured in a way that allows you to use an LLC to control your investments. If you’re ever sued, you can sign over the LLC to your trustee to prevent creditors from claiming your assets.
Interested in setting up an offshore asset protection trust with the help of a professional? Here’s a step-by-step guide showing how asset protection for cryptocurrency works:
- Get a full inventory of your cryptocurrency assets.
- Consider your risk level for any upcoming lawsuits, divorces, or other legal threats.
- Consult with an asset protection planner to see if an offshore asset protection trust is right for you.
- Once you choose to move forward with an OAPT, work with your asset protection planner to select the right jurisdiction.
- Have your planner create an offshore asset protection trust specifically designed to hold digital assets.
- Ask about incorporating an LLC “wrapper” to facilitate hands-on trading and asset management.
- Legally transfer ownership of your cryptocurrency to the offshore trust structure.
- Have your asset protection planner appoint a qualified, experienced offshore trustee who understands both digital asset management and local legal requirements.
- Check with your planner to ensure that the trustee sets up compliant custody solutions. These could involve cold storage, hardware wallets, or multi-signature arrangements.
- Regularly review and audit your trust and asset structures to ensure continued compliance and security.
- Update your trust documents and asset allocations if your personal, legal, or financial circumstances change.
- Avoid retaining direct control or personal access to the protected wallets, as this could create legal vulnerabilities.
- Include instructions for trusted heirs or beneficiaries regarding how digital assets are managed or accessed after your lifetime.
- Stay informed about new blockchain, regulatory, and asset protection developments relevant to crypto holdings.
