As an expert in asset protection, 13 years as an attorney, and too many battles to count, I can tell you with certainty that most asset protection plans are not worth the paper they are printed on.
In fact, the majority of asset protection plans sold in the United States are scams. They are marketed by fraudsters who have no idea what they are doing, have never been in a courtroom, have never gone to war, and have no idea how to properly protect your assets.
There are some structures that segment your exposure in a limited sense, but will not protect you against an extremely motivated plaintiff, nor do they protect the asset in question. For example, placing your US rental real estate properties in separate US LLCs is a good start. It means that a personal injury claim should be limited to the value of the property held in the LLC.
Of course, a hostile litigant will find ways to pierce the veil of the LLC, get to other real estate in separate entities, go after your personal savings and home, and cost you a fortune in legal fees. It is the high cost of defending an asset protection plan that brings most clients to the settlement tabl
What about transferring property out of your name to an heir or spouse? This also works in smaller cases, but a quality adversary will claim a fraudulent transfer, keep you and your spouse in court for years, and generally cause havoc until they are paid.
Remember, no matter how much money you spend, or how many barriers you put up, a domestic asset protection plan can be dismantled by the judge presiding over your case. Also, contingency fee lawyers can burry you in paperwork until you pay them and their clients.
Offshore Asset Protection
The only way to create an asset protection plan that is battle ready is to include an escape route that leads offshore. A domestic plan may hold up to some scrutiny, and it might dissuade a creditor with a small claim who is not willing to spend the money to break down your walls, but the war is already lost if you come up against a quality opponent. You are dead broke and just don’t know it yet.\
Remember that a US judge has control over any assets or property in the United States. While you can try to game the system with complex structures and transfers, the judge can do just about anything he likes. If you take the decision out of his hands, by moving your assets out of his reach and control, then you have the upper hand.
Offshore asset protection structures support domestic plans. Take the rental real estate LLC example above. The property held in the LLC is an easy target for the slip and fall litigant, and the purpose of the LLC is to limit your exposure to the value of the property it contains. If your plan includes an offshore trust, you might borrow against the real estate and transfer that cash to your trust, diminishing the value of the asset in the LLC and thus the size of the target.
The offshore asset protection plan will dissuade all but the heartiest creditors. It will make the cost of chasing your assets so high that no lawyer will take the case on contingency. While the offshore structure increases costs for those attacking you, it can reduce or eliminate your legal bills.
For example, you may decide not to fight the battle in the US, and thus not pay a US lawyer. Why not let the creditor get a judgment if there is nothing for them to take?
Along those same lines, your offshore asset protection plan will have a flight clause. This will allow you to move your assets, and your trust, from one jurisdiction to another. So, if someone does file a case in Nevis by putting up a $20,000 bond, let them spend money for a time and then move away. Once you relocate, they will need to chase you again, pay new council, file their claim anew, and generally be so frustrated that they will go away or settle for pennies on the dollar.
Other Offshore Asset Protection Considerations
Any offshore asset protection plan must be implemented and funded prior to you having any issues. For example, if you setup and fund a trust today, and injure someone with your car tomorrow, your trust will hold. If you run over someone today, and form a trust tomorrow, it is unlikely that your structure will be respected.
I will also point out that offshore asset protection structures are not intended to protect you from the US government. If you owe back taxes, back child support, or money to some other agency, then you must be cautious in selecting your offshore bank.
This limited protection is because the long arm of American “justice” can easily reach in to any bank account in the States, even if it is in a corporation or LLC. They can also access any account in Canada, France, or the UK. Finally, they can levy a foreign account if your bank has a branch in the US.
For example, if you have an offshore trust with money in HSBC Panama, the US can issue a levy to HSBC NY to access that account. For this reason, I never recommend you use an offshore bank with a branch in the United States.
What about the case where you fund a trust after the liability is incurred? This is called a fraudulent conveyance and US courts consider it a crime. A US judge can hold you in contempt (in jail) until you bring the assets back under his control.
Of course, if you are willing to abandon the US, and have a second passport in place, then you may have additional leverage not considered here.
I hope this article is helpful. For more detailed guidance on offshore trusts, please see my website at www.premieroffshore.com. Also, feel free to email me at info@premieroffshore.com or call me direct at (619) 564-4062 for a free and confidential consultation.