Asset Protection
Asset Protection Overview
Asset Protection involves the use of several legal disciplines crossing a number of functional boundaries, including Debtor-Creditor Law, Estate Planning, Partnerships, Trusts, Corporate Law, and Family Law. A side benefit is that these efforts usually offer an increased measure of privacy associated with personal or family transactions. A legal professional is frequently employed to identify the pitfalls and hazards that can occur when putting together a comprehensive Asset Protection Plan.
A common theme in the use of these structures is to gift some portion of the assets to a trust. Frequently the trust is created in an "Offshore Financial Center" that has legislation that caters to this type of structure through very favorable and flexible provisions. These same provisions provide little relief to potential creditors seeking to attack the assets. (Normally foreign jurisdictions will not recognize US judgments unless there is a treaty in effect authorizing such an action. The jurisdictions noted below do not have such treaties.)
The trust assets do not have to reside in the same jurisdiction as the trust. In fact, they may return to the US and invested in standard brokerage or bank accounts in the name of the trust or the trustee, however that approach could diminish some asset protection benefits depending on the specific circumstances. The trust can generally invest in higher yielding offshore investments including mutual funds, which are not generally open to US investors. Remember, the Offshore Asset Protection Trust is a foreign person. Typically the Foreign Asset Protection Trust will conduct its business through a captive International Business Company or LLC, frequently formed in a different jurisdiction than the trust itself, providng even a further barrier to attack.
The location of the trust provides a significantly higher barrier for any potential creditor attack than a domestic trust, however the ultimate safety of these assets will be somewhat determined by the provisions the client makes when designing the trust. The basic tenet determining the asset protection qualities of the final design hinges on the types of transfers done, who are the beneficiaries, was the transfer subject to any foreseeable creditor attack at the time of the transfer, and the degree of control of the trust and its assets mandated by the client.
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