Asset Protection From Lawsuits in the United States
The United States is often thought to be the most litigious country in the world. It does have the largest number of lawsuits. However, the dubious honor of lawsuits per capita belongs to Germany, with 123.2 lawsuits per 1,000 people. The U.S. only comes in fifth place (74.5/1,000), right behind Austria (95.9/1,000) and before the United Kingdom (64.4/1,000). The United States does have the most lawyers per capita. There is one lawyer for every 300 Americans, which translates to 1,116,967 practicing attorneys in the country today. In addition, there is an alarming increase in the number of lawsuits filed in the country each year. Clearly, there is a pressing need to protect one’s self and one’s business in such a litigious environment. Fortunately, there are several ways to accomplish this, with each option largely depending on US asset protection strategies geared to your specific needs.
The Litigation Environment in the United States
The legal system in the United States provides every American with a venue to seek redress and justice if they feel they have been victimized in some way. The National Center for State Courts (NCSC) provides data showing tort cases to comprise only 3 to 8.2 percent of the total number of cases filed in the United States. Tort cases are those in which an injured person seeks recovery of damages or monetary compensation from a negligent party. This may seem like a small number. However, keep in mind that there are more than 40 million lawsuits filed in the country every year. Even at just 3 percent, this results in at least 1.2 million tort cases filed in U.S. courts each year. At 8.2 percent, the number becomes alarmingly high; this means more than 3 million tort cases are filed annually.
Facing a litigious environment, business owners and other professionals, such as physicians, contractors, and lawyers, need to devise ways to protect their assets against predatory plaintiffs. Asset protection is quickly becoming a vital field within the legal arena. It is now a crucial, and oftentimes necessary, tool for regular individuals seeking to preserve and protect their assets from frivolous lawsuits. As the field grows and diversifies, asset owners have a range of asset protection structures they can use to preserve and protect their hard-earned assets.
The Business Entity as an Asset Protection Instrument
There are several different kinds of US business structures, each one with its own strengths and weaknesses. For example, a limited partnership was often used in the past. But it is not used much currently because it does not provide the same level of protection and flexibility as a limited liability company (LLC).
For example, a general partner of a limited partnership has full legal liability for actions against the company. Conversely, statutes protect the manager of an LLC from business lawsuits. One can only elect partnership taxation with a limited partnership. With an LLC, one can elect sole proprietorship, partnership, C-Corporation or S-Corporation taxation.
On the other hand, an LLC may be a flexible instrument, but it may not be the best option for certain types of industries. For example, if one wants to go public, a corporation is the best choice in most cases.
Choosing which business entity to use as part of an asset protection plan may depend on the type of business the client is involved in and the level of risk with which he or she is comfortable. It is also good to keep in mind that as a business expands and branches out, it may be necessary to re-tool the business entity as well.
Asset Protection as Part of Basic Estate Planning
Estate planning in the United States is a broad field and encompasses a variety of legal instruments, including living trusts, wills, financial and healthcare power of attorneys, and testamentary documents. Fortunately, we can add estate planning provisions into asset protection trusts. So, the same instrument can both protect your assets and allocate assets upon your passing. A seasoned estate planner knows that asset protection should be included in any sound estate planning policy.
Business entities, such as LLCs, can certainly be part of an estate planning scheme. But one can include other types of asset protection vehicles, such as trusts, as part of an overall estate planning strategy. There is no one-size-fits-all template when it comes to estate planning, as each client’s needs and plans differ widely. It is always sound practice to review one’s estate planning policy regularly or at least as often as major life changes occur.
Marriage and Divorce Asset Protection Planning
Getting married is an example of a major life change. It’s easy to romanticize the experience; after all, a wedding often is a romantic and happy occasion. However, it is equally important to keep one’s feet firmly on the ground. This is especially true if there are assets that need to be safeguarded for other people, such as children from a previous marriage. After all, by some estimates over 50% of marriages end in divorce in the United States.
It may also be that we need to shield your new spouse from the consequences of certain business activities. As with any major life event, a review of your existing asset protection plan is in order upon marriage, or, re-marriage, as the case may be. No one wants to think of divorce when getting married. But marital planning includes making sure the asset protection structures are solid and unassailable in the event of the dissolution of a marriage.
One of the only legal tools that works to protect assets in divorce is an offshore trust. We establish offshore trusts in the Caribbean Island of Nevis (Nevis trust) and in the Cook Islands (Cook Islands trust). Our foreign law firm stands in as trustee. Since your local courts do not have jurisdiction over our foreign law firm, the trust places the assets beyond their reach.
United States Asset Protection Strategies
Most investment assets are income-producing. Such vehicles that include both tangible and intangible items. The most common investments in the United States include assets such as stocks, mutual funds, real estate, and retirement savings accounts. Whenever possible, it is often wise to hold different kinds of assets to diversify and mitigate any unforeseen calamity or downturn. In the United States, asset protection from lawsuits extremely important. So, choosing the right legal tool to protect your money requires experienced guidance. Our US-based attorneys can help you when you call.
Some investment assets like IRAs that contain certificates of deposit and money market deposit accounts are insured by government agencies—up to a certain amount. Other types of investment assets, like rental real estate, typically benefit from the protection of an LLC. There are several liability-protected entities one can choose to invest in and include in an asset protection plan. The right mix of these entities depends on a person’s current and future investment needs and asset protection requirements.
Domestic Asset Protection Trusts
As of this writing, there are seventeen US states that allow its residents to set up domestic asset protection trusts. Alaska and Delaware pioneered DAPTs in the United States in 1997. DAPTs have been experiencing a resurgence in recent years. In general, properly-drafted DAPTs provide a secure wall of protection around most types of assets. It’s a convenient way to protect assets and keep them close by at the same time.
The problem is that case law has not been very kind to DAPTs. The increasing theories of legal liability have pierced US asset protection trusts repeatedly. So, for the strongest time-tested asset protection structure, the offshore trust is the tool to use.
Offshore Asset Protection Trusts
Want the best way to become lawsuit proof? Here it is. The offshore trust. There are several offshore jurisdictions that actively court foreign investors. They pass laws to attract asset owners hoping to gain their trust and business. These countries offer asset protection terms that are nearly ironclad. For US individuals seeking asset protection that is virtually impenetrable, there are few options better than an offshore trust. These foreign jurisdictions protect asset owners in several ways.
Some require plaintiffs to deposit substantial bonds when challenging an asset protection trust under their jurisdiction. For example, in Nevis, one must post a $100,000 bond with the courts before challenging an asset transfer into the trust. Others do not recognize typical instruments of redress such as fraudulent conveyance or the Mareva injunction. (The Mareva injunction is British-speak for temporary restraining order). Offshore asset protection trusts work well for asset owners who want to withstand the aggressive creditor. It also benefits individuals who are comfortable housing their assets in a distant location.
Incidentally, in their current issue, Global Finance says that of the top 50 safest banks in the world, only four are in the United States. All four are tiny farming banks. There are no major US banks on the list. In fact the safest bank in the US is number 41 on the list. So, there are 40 banks in the world that are safer than the very safest US bank.
Advanced Estate Planning
For many US individuals, estate planning involves more than a last will and testament. That is, it involves more than establishing trust funds for future generations. Vehicles such as spousal lifetime assets trusts can help minimize estate taxes, or eliminate them altogether. Dynasty trusts pass wealth from one generation to the next without incurring transfer taxes, such as gift or estate taxes. This ensures that the assets you leave behind will continue to benefit future generations without undue burden on their part.
Advanced estate planning can also create a legacy through the establishment of charitable trusts. Some countries that provide for asset protection trusts also allow such trusts to continue in perpetuity. Advanced estate planning is not only for individuals with huge sums of money. It is also for those who wish to ensure that their assets benefit their loved ones. Others may want to give to the causes and charities they have supported throughout their lives. Even small annuities generated by these trusts go a long way in ensuring the survival of organizations that depend largely on gifts and donations.
Even in a litigious society, it is possible for the United States citizen to protect his or her assets. So when you face frivolous lawsuits and predatory plaintiffs and creditors. A good beginning for most people usually means choosing the right business entity to house one’s assets and engaging a specialist as a guide in basic estate planning. Businesspeople who are contemplating marriage would be wise to look into marital planning as a way to safeguard the assets they wish to keep out of the conjugal pool.
Investors should consider putting their money in liability-protected entities as a way to shield their assets from future lawsuits. Trusts—especially offshore trusts—are powerful vehicles of protection. We have asset protection tools for almost any type of asset. Finally, we also have advanced estate planning structures. These tools are available to those US individuals who wish to establish a legacy. Thus, one can ensure that future generations of their family will continue to enjoy the benefits of the assets they have worked so hard to preserve.