Building a successful estate, although it takes a lifetime of hard work, is only half the battle. Just as big a challenge, if not more so, is safeguarding your wealth from the host of threads that seek to Rob you of your hard earned financial security. No one is immune. Taxes, lawsuits, creditor actions, even divorces can shake the foundations of the most financially secure. In fact, anyone who has managed to accumulate assets, whether a home, business, rental property, investments, or other valuable property, can be subject to so called predator actions. The more wealthy owned, the more enticing target you become to those eager to deprive you and your family of the fruits of your life’s work.
Although we all share the danger of being targeted by such predators, the risk is realistically greater for some then others. The most often targeted by lawsuits and creditor actions are usually involved in high risk professions. These include doctors, lawyers, accountants, business managers, financial advisors, engineers, architects, and other professional advisors. But also clearly in predator sites are business owners, employers, landlords, and contractors, among others. Having substantial financial resources may be all it takes to put you on the wrong end of a lawsuit.
If such predators pose a threat to your financial security, it would be wise for you to explore the legal options that exist for you to protect your assets for yourself and your family. Such legal options to protect your state fall under the category of asset management, wealth management, and protection planning period. To know more about how you can protect your assets, contact a professional today.
What is asset protection planning?
Put simply, asset protection planning is the process of removing your property from your individual ownership and placing it beyond the reach of potential claimants and creditors. The process involves changing legal ownership of your property from your individual name to a protective entity, such as a limited partnership or trust.
If that sounds like a terrible idea, hold on. A properly designed limited partnership or trust can give you all the benefits of ownership, such as control over an assets disposition and the right to its income. The difference is that since you no longer legally own the asset, it cannot be seized to satisfy judgment against you. It is a serving platter who realizes that in today’s world legal control over an asset is often more beneficial than directly owning it.
What asset protection does a limited partnership provide?
As stated in the preceding chapter, limited partnerships offer significant asset protection opportunities. Limited partnerships provide such asset protection because of the way the laws that govern partnerships treat partners and partnership assets. As you will recall, limited partnerships have two kinds of partners, each with dramatically different roles and responsibilities. General partners manage the partnership, and thus have full responsibility and control.
Limited partners, on the other hand, have little, if any, input into the running of the partnership; Therefore, they are not held responsible for its management or liability it might create. No one would want to become a limited partner without this protection. The law is designed to encourage the creation of partnerships and the economic benefits they produce for society.
The second important feature of limited partnerships is that assets titled in the name of the partnership are deemed the property of the partnership itself, not that of the individual partners. The legal importance of this arrangement is that partnership assets are shielded from creditor claims against the individual partners. In other words, a creditor cannot force the sale of assets owned by the partnership to satisfy the judgment against one of its members. Instead, such creditors are entitled to attach only the members individually owned assets and to receive distributions made by the partnership to that member.
To achieve asset protection with a limited partnership you would transfer individual assets parentheses real estate, business interests, investments, artwork, etc. Parentheses out of your personal name and into the name of the limited liability partnership. A common arrangement would be for you to become 1% general partner, giving you the right to fully control and manage property just as before. You would also become a 99% limited partner, entitling you to receive income from the partnership, but shielding your limited partnership assets from credit or claims. For the greatest asset protection, most individuals who use limited partnerships transfer part of their limited partnership shares two others, usually family members. This shows that the partnership has legitimate business purposes other than just defeating creditor claims and makes them more likely to survive a court challenge. Because limited partnerships can provide significant tax advantages, as well as asset protection, it is often an ideal strategy to use when an individual wants to pass wealth, especially business, to other family members.
Sometimes a limited partnership alone isn’t enough protection against possible lawsuits or creditor actions. That’s when an offshore trust becomes an important tool in the asset protection toolkit.
What is an offshore trust?
An offshore trust is simply a trust created outside of the legal jurisdiction of the United States. These offshore trusts are effective in protecting assets simply because the laws of the nations in which they are drafted provide better creditor protection than the protections provided in the United States of America.
Why do offshore trust provide better asset protection?
In the United States, generally no asset protection exists for assets that you placed in a trust created to benefit yourself and for which you are the trustee. In such cases, the trusts assets can be seized by your creditors just as if they were owned in your name.
however, a handful of other nations dash such as the Isle of man, the Cook Islands, and Belize to name a few dash offered trust makers greater asset protection. These nations allow you to be the trust maker, trustee, and the trust beneficiary and still protect the trust assets from creditors.
Furthermore, these countries will not honor a United States courts judgment or lien against trust assets in their jurisdiction. Before a creditor can seize trust assets these nations require that a trial be held on their soil. The creditor must pay the often exorbitant fees associated with litigating a case in a foreign country. The cost of bringing witness is another legal evidence to a foreign court can prove prohibitive , as can the legal fees of a local attorney. Legal fees alone can prove a costly an insurmountable burden to bring a lawsuit, as the trust favorable nations do not allow for contingency fee lawsuits. Instead, they require that the plaintiffs attorney be paid without regard to the outcome of the action.
If this were not enough in the way of asset protection, these nations also demand that the plaintiff meet the burden of proof required in the United States criminal courts. A creditor plaintiff must prove its case quote beyond a reasonable doubt, End Quote not the much more LAX quote preponderance of evidence and quote standard used in the United States.
Finally, the country’s most favorable to offshore trusts greatly limit the amount of time allowed to a plaintiff to bring legal action. In the United States, plaintiffs often have many years to file a lawsuit but in these offshore nations, plaintiffs have only a year or two to bring suit, depending on the circumstances. So for those desiring greater asset protection, offshore trust can provide immeasurable Peace of Mind.
How do you establish an offshore trust?
To obtain the legal protections offered by offshore trust, typically you would have your attorney creatable they limited partnership and a trust in the desired offshore nation. He would then transfer your 99% limited partnership shares to the offshore trust an retain the 1% general partner share. Doing this would afford either greatest possible degree of protection for your wealth, will preserving complete control over the assets themselves. Fortunately, offshore trust laws do not require that the assets literally be removed from US soil nor do they require that the trust maker relocate to a foreign country. As long as the ownership of the assets and the jurisdiction governing the trust reside in a trust favorable nation, the trust maker receives full asset protection.
What factors need to be considered before establishing an offshore trust?
The reality is that asset protection planning is more costly to implement than other estate plans in addition you’ll spend more each year to maintain it but keep in mind the savings they can also generate. You may be able to reduce considerably the malpractice or business liability insurance premiums you now pay once most of your assets are protected offshore. Furthermore, you can save the enormous costs of defending yourself in a lawsuit, or worse, losing it all in court. With proper asset protection in place, you may never have to experience either. The Peace of Mind alone afforded by this planning option is often well worth the modest investment.
He if an offshore trust makes sense to you, the time to implement it is now before it is too late an illegal crisis is already upon you. If you wait until action against you is pending, threatened, or expected, the measures you take to remove wealth from your state will be deemed by a fraudulent conveyance and invalidated by a court of law. Moreover, don’t think that an offshore trust will lessen your tax liability. If you remove assets offshore, you are required to notify the IRS and pay US taxes on trust earnings period
One final note is also in order. In an attempt to capture some of the offshore trust business, a few states recently enacted laws which promised to provide trust created under their jurisdiction with some of the same protections offered by trust created in foringer stations. Was possible that these trusts may work for those who live, work, or own all their assets in one of these states, those in other states may be exposed to creditor action just as before because each state’s courts are required to give full faith and credit to the judgments of other states courts. A judgement against you in one state would be honored by the other states even if the trust you created seems to promise you complete protection. If you think that asset protection may be for you, sit down immediately with your trusted estate planning attorney. It is your attorney who can evaluate your individual situation and determine the most effective strategy to help you meet your asset protection goals.