Creating protected assets is achieved by drafting an asset protection plan. This process prevents assets from being seized by creditors or through legal claims. Assets of the debtor, known as nonexempt assets, are restructured as assets or exempt assets that will be unable to be seized in the event of a claim or judgment.

An asset protection plan should be drafted long before any claim is made. When creating the plan, overall goals should be considered. These include:

  • What are your short-term financial goals?
  • What are your long-term financial goals?
  • What are your estate planning goals?

A proper plan created before a claim is made will prevent any issues when attempting to protect assets. If a plan is made after a claim, they will most likely be reversed as it will be seen as a fraudulent transfer of assets.

How to Protect Assets

Each type of asset you are looking to protect will have different requirements. For example:

  • Each portion of real estate should be put into a separate land trust. This prevents your name from appearing in a search of public records.
  • The beneficiary of a land trust should be an LLC or limited liability company. When the property is in a trust, the property is protected from any legal claims made against you. This does not apply to your personal home because it falls into a separate tax category.
  • When protecting cash, amounts of $100,000 or less will be most protected under an LLC. Nevis LLC, a Caribbean island, offers the most secure protection jurisdictionally.
  • If more than $100,000 needs protection, an offshore asset protection in a location such as the Cook Islands would be the best legal option.
  • Title holding trusts are used for automobiles to keep ownership private.

Ten Rules for Asset Protection Planning

  1. Planning should always begin before a claim is made. If planning is attempted after a claim is made, the plan may be dismantled through fraudulent transfer law.
  2. If planning starts after a claim is made, problems will occur. The debtor and other participants could face responsibility for any attorney fees of the creditor and the possibility of a bankruptcy discharge will be in question.
  3. Insurance and asset planning protection are not the same. Insurance will help pay for legal fees, while asset planning protection will not.
  4. When planning, remember that trusts are for personal assets and business entities are for business assets. Trusts that are well-drafted and funded have proven over the years to hold up in legal proceedings. Business assets should not also be personal assets, such as a company car or truck.
  5. A balance between the asset and the debtor should be present when drafting a plan. If too much control is given to the debtor, a creditor may be able to successfully argue that the asset protection plan and the debtor are one and the same.
  6. Asset protection planning and tax and estate planning don't always work together well. Gifts from an estate plan to beneficiaries may be seen as fraudulent transfers and the value of a home may be hindered by homestead exemptions resulting in the value of the home being stuck in the debtor's estate.
  7. Offshore accounts may not matter if you are located in the United States. Repatriation orders require the debtor to return their money to the United States and have occurred recently in many legal cases. If this is not completed, a bench warrant may be issued to the debtor and they will remain in contempt of court until they comply.
  8. Bankruptcy is not guaranteed to relieve responsibility. Newer laws put in place in 2005 have made asset protection plans less likely to hold up in court.
  9. Overcomplicated plans won't hold up. If an asset protection plan is difficult to explain, it may cause a judge to question the legality of the plan and consider that fraud may be taking place. Plans should be simple and easy to explain to anyone reading the document.
  10. Expect that all plan information will be known to anyone questioning the plan details. Any level of secrecy should be avoided when drafting the plan to avoid legal problems in the future as the result of an ex-spouse or disgruntled employee.

Asset protection plans are considered tax neutral, meaning that tax liability is not affected on any of the assets put into a legal plan. This includes worldwide income, which must be reported or fines and criminal charges may be levied.

If you need help with protected assets, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.