ASSET PROTECTION STRATEGIES

What Is Asset Protection Planning? Asset and wealth protection planning is very important and without such planning you are creating a threat to the preservation of your wealth. The key is to plan now to reduce or eliminate adverse economic consequences from lawsuits or other claims which may arise in the future. An asset protection plan has two goals: (1) to make the enforcement of judgments against protected assets difficult, if not impossible; and, (2) to allow you to plan and decide who will have the beneficial enjoyment of the protected assets. Implementing an asset and wealth protection plan comprises of identifying the possible threats; and understanding the benefits of instituting a plan in order to protect and preserve assets before a problem arise.

Threats…. Professional liability Personal Liability Breach of contract or negligence claims from persons with whom the settlor or beneficiaries have transacted business; Forced heirship claims from the executors or administrators of the settlor or a beneficiary’s estate, or from the settlor’s spouse or children; Family provision or inheritance claims brought by a spouse, former spouse, child or other dependent of the settlor or spouse; Divorce or separation proceedings from a former spouse of the settlor or a beneficiary; and Claims in bankruptcy

HOW TO PROTECT YOURSELF? Use of business entities Make sure you have sufficient and adequate insurance Transfer the assets Plan now!

Plan Now! A coordinated, integrated approach to protect your assets during your life and long-term estate planning should be considered. Overall estate plan is important, the use an integrated plan to maximize the wealth protection and benefit of your assets during your lifetime as well as maximize the amount you ultimately can transfer after your death. The implementation of an integrated asset protection and estate plan strategy looks beyond traditional post- mortem planning. It looks at how you manage your assets today, and how that management can be structured and coordinated to maximize ease of use and flexibility in the event of unforeseen events and minimize estate taxes. Implementing an appropriate and comprehensive asset protection and estate structure necessarily involves the use of several legal disciplines, including the law of corporations, partnerships, trusts, and estate planning. You should also be concerned with your living requirements of cash flow and capital needs, today and also in the future.

Considerations A structure that provides reasonable tax minimization benefits. Protection of non-business assets and accumulated profits from claims against the business entity and directors. While it is not often ‘front of mind’ when establishing new structures, it is important to have an eye on the problems that can arise if the clients or family members, die or are involved in family law disputes. The issues and objectives will also often be different depending upon whether clients are establishing structures to undertake active trading activities or merely want a ‘safe’ investment structure. Balancing tax and risk issues: Get it right from the start Type of structure is crucial Use multiple entities: Segregation of assets Use of trusts

Some ways……. Limited partnerships and corporations Limited liability companies, Private annuities Irrevocable or foreign situs asset protection trusts Captive insurance companies protecting business/practice receivables or a combination or multiple structure of these in concert with an integrated overall estate plan can offer a tremendous amount of protection and potentially, additional estate tax savings as well.

Separation of asset ownership and control The underlying principal of asset protection planning is the separation of asset ownership from control. Several entities can be used to accomplish this separation. The ownership of personal assets can be structured in such a way that future creditors will have a very difficult time attaching and applying those assets in satisfaction of a judgment. All asset protection strategies have one thing in common: to make it more difficult for a claimant to either find or take your assets. The intended effect of a properly designed asset protection structure is the reduction of incentive to pursue litigation against you.

What asset protection is not! It is not a way to defraud creditors and avoid accountability for criminal acts. It is not a way to escape liability for your past actions.

When Should You Start Your Asset Protection Planning? The best time to consider asset protection planning is before you need it. Asset protection planning is like getting a bank loan; you can't get it when you need it, but it's easy to get it if you don't. If a lawsuit or other claim has already been threatened or filed, your asset protection planning options are extremely limited. On the other hand, if you begin your planning and create an asset protection structure before any claims are made, then your options are very broad.

Why offshore asset protection? Placing your assets into a properly constructed international trusts puts multiple layers of protection between your net worth and potential creditors. You can achieve even higher protection by combining a trust held with a corporate entity. Reduced exposure to litigation Certain jurisdictions are generally is more litigation prone and creditor friendly than some other jurisdictions. Moving your assets out of these jurisdictions into a suitable jurisdiction reduces your exposure. Stronger protection laws. High level of asset protection and political stability. Legal and legitimate An offshore trust does not “hide” any assets. Neither does it reduce your tax liability. It only creates barriers to protect assets from collection. As such, it is not a standalone offshoring or estate and tax planning solution. Rather it is one important component in an overall offshoring strategy.  

Asset Protection Trust An express trust with specific terms that aim to protect the trust property from claims brought against the trust’s settlor or beneficiaries. Trusts that provide trustees with discretionary dispositive and management powers can facilitate continuity when transitioning from one generation to the next. Flexibility to adapt to unforeseen circumstances without having to, for example, dispose of the assets or apply to a court for the appointment of a guardian, receiver, administrator or executor of an individual or an individual’s estate . Efficient tax planning. For example, persons whose family members may be moving from one jurisdiction to another might wish to ensure they do not unwittingly expose existing capital and future income and gains on such capital to taxation in the jurisdiction where they intend to become resident

Asset Protection Trust…Tips The trust instrument should reflect the intentions of the settlor in respect of how the trust property is to be managed and distributed; A trust set up with the intention to defraud creditors are vulnerable of being set aside; A trust that appears valid on its face may be at risk of being set aside if the trustee and the settlor had in fact intended for the trust to managed and distributed in accordance with the directions of the settlor from time to time rather than in accordance with the trust instrument; the governing law of the trust: applicable perpetuity periods; and applicable conflict of laws rules including firewall legislation and fraudulent transfer legislation; the mental or other capacity of the settlor to transfer property into a trust; the capacity of a settlor to transfer of property into a trust made during the settlor’s life time (i.e. an inter vivos transfer) may be treated different from testamentary transfers under applicable legislation;

Asset Protection Trust…Tips Appoint a trustee in a jurisdiction other than where movable trust property is situated may make it more difficult for creditors to successfully access trust property to satisfy claims; Whether the applicable legal formalities to complete a transfer of property into the trust are complied with; The types of claims that may be recognised and enforced under the laws of the jurisdiction where the trustee or trust property is situated; the types of claims the settlor or beneficiaries may most likely be exposed to in the jurisdictions in which they are resident or otherwise connected; limitation periods in those jurisdictions in which a claims may be made against the trustee, beneficiaries or trust property; the nature of any powers and interests granted to the settlor, beneficiaries and other persons under the terms of the trust- creditors generally have greater prospects of accessing trust property if the defendant holds a power to revoke or general power powers of appointment or other unlimited personal powers; and insolvency laws in the jurisdiction where the trustee or trust property is situated, including mutual assistance provisions that may provide the applicable court power to facilitate foreign courts by granting disclosure orders in respect of a trust.

Challenges… Conflict of laws Enforcement of judgment

The DO’s and the DON’Ts Take action now Make sure you have sufficient insurance Separate business from personal assets Ensure you are aware of all applicable laws Understand each step Diversification No shortcuts

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