Asset Protection | Wealth Management

Asset protection is risk management planning that is designed to discourage a potential lawsuit, or seizure by government agencies, creditors, or ex-spouses. Asset protection now can prevent undesirable outcomes later when it is too late to protect what you have and control where it goes.

Many people might think that their assets are safe and secure in regular institutions or with standard title. Some have never thought about their net worth asset value or that it is vulnerable to confiscation. Asset protection is something that many put off and  realize often too late that their possessions and wealth could be destroyed instantly.

Have you simply put management of your assets on the back burner, or in the hands of your accountant, lawyer, or brokerage salesman? What situations could arise that might jeopardize your savings, investments, property, income, businesses and partnerships?

Only one in five people get around to writing out even a simple will. Many people die each year intestate, leaving government to divvy up their estates, charging fees and taxes, and leaving family with next to nothing. State laws may automatically pass proceeds to a prescribed list of relatives, and in many cases they may not be who you would choose.

Separation, divorce, de facto relationships and dependents can complicate estate disbursements. Judgments by government agencies and lawsuits by individuals, which are increasing 25% per year and expected to go higher, can decimate or eradicate people’s wealth.

By first establishing an assets protection structure you can control the risk of its loss. Then you can determine how the assets might be disbursed at a later date, or on your death to your chosen beneficiaries. Legal asset-protection structures lower your visibility to frivolous lawsuits, reduce the risk of being targeted by unscrupulous creditors and zealous bureaucrats and remove much of the threat of being sued and having to settle.

The ways to implement assets protection structures involve determining which authorities have jurisdiction over your possessions. Part of this determination includes choosing between convenience and cost. If your business or income is generated in certain locations you may have little choice in where you live. Your country of residence can be the biggest determining factor of which legal system has the ability to adjudicate on your affairs.

Most asset protection strategies use onshore and offshore entities to isolate and remove assets from the reach of predatory agencies and lawyers. Choosing your country of residency could have the biggest impact on your exposure to taxation agencies. Citizenship may be less significant than the location in which you spend the majority of your time, although US citizens are liable for income tax no matter where they live in the world.

There are many possibilities of where you can reside and pay low personal taxes but they may not be as convenient or desirable as where you would rather spend much of your life, such as with family and friends. Travel convenience and cost, communications, climate and amenities may make some destinations impractical.

But there may be good reasons why you would choose to reside in one country, travel as necessary for business and pleasure, and base your business entities in another country. Each person’s individual situation and preferences must be taken into account.

Making a valid asset protection strategy and structure requires a credible scenario that can satisfy a judge or jury should it ever be challenged. It must provide a plausible story and have legal integrity. Creating a scenario and story that is obviously rushed into action can be overturned by authorities. This is why adequate forethought and realistic planning is needed to place your offshore investing and offshore asset protection script in motion.

Intentionally diversifying and placing different types of assets under relevant and beneficial jurisdiction is part of the overall strategy. Jurisdiction and laws are in constant flux and asset protection strategies need to be flexible and constantly monitored for their effectiveness.

There are three types of categories of asset protection strategies:

• Efficacy Known – these are known to not work and offer little or no protection. Conveyancing assets at little or reduced value to partners, friends or family to avoid creditors or taxes can be considered criminal and result in total loss of assets and worse, fines and imprisonment.
• Efficacy Challenged – these are situations where the law has not determined the legality. Legislation may be in progress to close loopholes in this category or reverse existing  exemption status.
• Innovative Frontier – this is the most complex and expensive to implement but is the most flexible and effective, with multiple tiers of impregnable protection, otherwise described as “bullet-proof” or “brick wall”.

The last category typically involves forming international business companies in an offshore location that is friendly to investors. International incorporation provides a barrier to penetration and additional layers of laws for attorneys and agencies to navigate. Increasing the cost of pursuit onto your adversary is a strong deterrent to being targeted.

Another tactic is to use offshore bank accounts that can be anonymous and made inaccessible to foreign agencies, while still offering all the convenience that regular banks afford their customers such as debit and credit cards and online banking. Many countries have specifically set up their laws and banks to offer these services. Trusts and foundations are another further level of protection and can be combined with the previously mentioned entities.

One of the considerations to remember is that privacy and asset protection come at a cost. Depending on the value of your net worth and the hostile nature of your business environment and country, determining which combination of entities and systems can be the biggest obstacle to getting started. Remember that lawsuits have increased 50% in the last 10 years and legal costs are growing four times faster than economic growth.

This means that not only is the cost of setting up your estate plan rapidly increasing but also that the cost of defending it is escalating. Time is of the essence and protection of your hard earned assets can provide invaluable peace of mind and security to your own future and that of your family.

Consider asset protection as a type of insurance –  part of a risk management plan that comes with a cost but on which you you hope to never need place a claim. For asset protection think in advance and do not rush into complex arrangements you may not want to maintain. Wherever you are a taxable resident pay taxes where due and legitimately reduce your tax liability while ethically obscuring your wealth from those who are want to steal it from you.

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