But these thoughts could not be any further from the truth. Asset Protection Planning is a totally viable industry, and a very useful way to plan for the unexpected.
Who could benefit from Asset Protection Planning? Everyone. The primary goal of this type of planning is to hedge an individual’s or family’s risk against lawsuits, bankruptcy, and creditors. Basic asset protection can be as simple is purchasing an insurance policy, and as complex as establishing multiple Offshore Asset Protection trusts all over the South Pacific. Regardless of which end of this spectrum you feel is a good fit, Asset Protection Planning can not only provide peace of mind, but a pretty solid way of keeping your family’s hard-earned assets safe.
- Proper Asset Protection Planning needs to be above the water. If one is legally required to disclose information regarding the location of their assets, the strategy does not include lying or not answering that question. Everything needs to be transparent, honest, ethical, and legitimate. Also, this isn’t the 1990′s, and I am not a lawyer out of a John Grisham novel; Asset Protection does not include searching for, and finding tax havens. The IRS has strict reporting requirements of offshore assets and income, and complete compliance with those laws are necessary.
- Also, there is a long-settled law referred to as the “Fraudulent Conveyance (or “Transfer”) Act,” which essentially voids any transfer of assets for the purpose of delaying or hindering the collection acts of a creditor (California Civil Code §3439). For an individual who is in the middle of a lawsuit which does not look very promising for him, moving mountains of cash into offshore entities will likely be reversed. The key to planning is to do it ahead of time–when you don’t think you need it, because when you do need it, it’s too late. So understand that no Asset Protection Planning advice that you will ever receive from me has anything to do being dishonest or illegally covert, and it will certainly not involve playing hide and seek with the IRS.
Asset Protection Planning should be thought of as a spectrum of options, rather than an exact fit for any one individual or family. Where along this spectrum an individual or family wants to explore, all depends on how certain factors play into their specific situation. Such factors include:
- Budget for upfront legal and set-up costs;
- Ongoing maintenance fees and costs;
- Accessibility and control over protected assets; and
- Overall protective capabilities of the various options.
At the simplest end of the spectrum (we’ll call this the “Grandma End” [with no disrespect to grandmothers anywhere]), we have options which (1) cost very little in terms of upfront legal fees; (2) cost very little, and are very simple to maintain; (3) provide significant accessibility and control over protected assets; BUT (4) provide relatively little protection. At the other end of the spectrum (we’ll call this the “Jason Bourne End”), we have options which (1) require a larger upfront financial investment; (2) require professional assistance (and accompanying fees) to maintain; (3) are relatively difficult to freely access and control. A third party is usually necessary to access funds; BUT (4) provide near bullet-proof protection from a wide array of potential threats.
As you can see, at the “Grandma” end of the spectrum we have inexpensive and simple solutions which provide relatively little protection, and at the “Jason Bourne” end we have more expensive and complicated solutions which provide near certain protection. Another primary principle to consider in Asset Protection Planning is that you cannot have your cake and eat it too. If you want a really solid plan in place that will hold up against almost anything, you need to make some sacrifices.
Proper Asset Protection Planning is always done with full disclosure, in accordance with the law, and without any shenanigans. As so, the law is not going favor an individual or family that maintains complete control and management over their assets, and also enjoys complete immunity from lawsuits and creditors.
Going into the different asset protection strategies is a little beyond the scope of this posting, but the overall strategy is universal among nearly all asset protection planning options–To structure your assets and finances in a way that makes it difficult for adverse parties to access them, lien them, or judicially compel you to turn them over. For example, can a California Court put a lien on a California bank account? Absolutely. Can a California Court put a lien on a Nevada bank account held inside of a Nevada LLC? Not necessarily. But can a Nevada Court lien such an account? Absolutely, BUT Nevada laws are a lot more consumer-friendly than most other states, and it is a little more difficult (although still pretty easy) for an adverse party to access or recover a Nevada bank account held inside a Nevada LLC.
In applying the above-mentioned principle to our example, by moving assets to Nevada, we are not “sheltering” the assets since anyone with enough money can hire a good Nevada attorney, and get you to turn over these assets to satisfy a legal judgment or pay your valid debts. But it would be a little bit more difficult to do so; and there lies the protection. An individual with a Nevada LLC now has some bargaining power since everyone knows that it would cost a little more to compel such an individual to pay a judgment, satisfy a debt, etc. And let me reinforce my earlier admonition–Asset Protection Planning is not a way for someone to break the law, or otherwise avoid legal obligations; it is a way to structure one’s assets to be less of a target for frivolous lawsuits or claims.
Now why “Jason Bourne?” Jason Bourne is the younger generation’s James Bond–an international man of mystery. And advanced Asset Protection Planning Strategies (the other end of the spectrum) include International Banking, Offshore Asset Protection Trusts, and Foreign Corporations–real “exotic” stuff. But anyone looking for a little more adventure in their lives should look elsewhere; advanced strategies are expensive, complex, and are a magnet for raised eyebrows. Although commonly perceived as illegal and unethical, offshore planning is a legitimate way for an individual or family to move assets outside of the legal jurisdiction of the United States. The result of this is that an adverse party who is looking to play hardball and go after one’s last penny, will have to take the entire legal battle to the Cayman Islands or the Cook Islands, etc. And trying to recover assets using the laws of a country who attributes most of their revenue to maintaining these types of trusts, entities, and protection is near impossible. Theoretically however, can someone lose assets contained in an offshore Trust? Sure, but the 7-figure legal bill to attack such assets may incentivize an adverse party to consider settling out of court, or even better….maybe just go to the next guy on the list who has his nest egg sitting in a plain vanilla U.S. Checking Account.