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Asset Protection: A Complete Guide For Dummies

The asset protection issue is widely discussed in society, especially in the current era of geopolitical uncertainty, tightening requirements for offshore companies, and stringent norms imposed to identify people that avoid tax payments. However, not everyone is clear on what has to be protected and in what way. Advisors usually recommend setting up an offshore company (LLC), a trust, or a foundation for asset protection. But what exactly will your protection cover and how will it be done technically?

Asset Protection

Assets

Anything that belongs to someone can be an asset, including valuable tangible and intangible property that can be converted into cash.

Assets mainly mean fixed and intangible assets used in business to generate profit. However, assets may also include:

  • Real estate
  • Cars
  • Objects of art
  • Musical instruments
  • Precious metals, etc.

Protection

Simply put, protection is a set of measures that limit the risk of fraud, harm, and loss of the above assets.

You may need asset protection as a result of hostile actions or resonance of the asset owner’s actions that may cause their seizure on the basis of a court decision. Loss of funds or other assets may also result from unpaid debt, medical negligence, divorce, etc.

It does not matter how ethical asset protection is, but these are the risks that people want to avoid.

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If you need to correctly organize your asset protection, please contact our specialists using any convenient method. We will answer all your questions in the course of a free consultation focused on offshore trust or foundation registration for asset protection.

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Terminology

When a specialist chooses the mechanism of asset protection, not everyone understands the terminology used. For example, a founder is a person that founded a trust for asset protection or other purposes. It will be referred to as one person in the context even if it includes several individuals or even organizations. They are also debtors if they borrow some assets from creditors.

When we are talking about the so-called trustee, it refers to a certain individual or a group of persons, companies, foundations, other trusts, etc., that own the asset protection trust and bear responsibility for asset management in the trust. Trustees are as a rule licensed and regulated representatives that have their headquarters, representative offices, and even citizenship in tax havens and work professionally with asset protection.

Asset protection trusts also have their beneficiaries (a person, a group of people, a company, a foundation, or another trust that can receive (and actually receive) profit from the trust. For example, parents can set up a trust for their children and rule out that the assets will be transferred to them under certain conditions (when children turn 18 or give birth to grandchildren).

The founder himself may be the beneficiary of the asset protection trust, and these entities are called personal trusts. In many cases, these trusts do not provide the same level of asset protection as those where a third person is a beneficiary.

Asset Protection

Asset protection implies a combination of legal and financial strategies used to limit the impact of potential risks on assets. We are talking about litigation risks, creditors, and other kinds of legal claims against assets. The protection is aimed at minimizing the risk of losing valuable assets due to unforeseen circumstances by retaining a certain level of flexibility and control over them. 

The asset protection strategy provides different methods, including the following ones:

  • Establishment of limited liability trusts, corporations, or companies for asset protection
  • Buying insurance policies that cover your assets
  • Asset transfer to family members or business partners

Particular asset protection instruments depend on personal circumstances, the kind of risk, and the long-term goals of the person who needs asset protection.

Asset protection is usually used by persons subject to litigation risks, for instance, business owners, investors, and wealthy individuals. The application of the right asset protection strategies helps them protect their money from potential creditors and legal claims, and also preserve their assets for future generations.

It is important to note that asset protection should always be legal and ethical. Any attempts to conceal the assets or deceive creditors may entail serious legal consequences. Therefore, if you are planning to organize asset protection, seek the advice of a professional lawyer or financial consultant before you implement any asset protection strategies.

Find out how to implement a reliable asset protection strategy with the help of a Nevis trust.

Asset Protection Using a Panama Foundation

How to protect my assets, anyway? This is a question that you probably asked yourself many times.

If you address a seasoned expert, he or she will offer you a ready-made package for asset protection, for example, a Nevis trust in combination with a Panama foundation. And this is a really great solution to the asset protection problem.

Panama offshore foundation is recognized as one of the best asset protection instruments when it comes to real estate planning as well. The Panama law dated June 12, 1995, No. 25 gives the definition of a private foundation used for asset protection now and explains the principles of its work. A decree was adopted in August of the same year, and its provisions created the basis for the law which said that the foundation is governed by the Foundation Charter and its clauses. It means that its founder can make up his/her own rules and peculiarities on the basis of personal motifs, and there is no need for them to be registered in the State Register. As a result, the foundation provides absolute confidentiality, which is essential for asset protection.

As the foundations are formed more and more actively for asset protection purposes, the 1995 law is constantly updated and improved. At present, the foundation is a separate entity used for asset protection that does not depend on its founders.

In fact, you should separate the assets and the probable events and consequences that may result in losses and do harm to your assets. A simple example here is divorce. No one can say that this will never happen, and the spouse can protect all of his or her assets using a trust. A correctly organized trust structure will help you create the conditions under which the person no longer owns the assets in the trust, which will limit the possibility of dividing them in case of divorce.

It will happen because all assets will be transferred to the trustee to be managed. The latter should be a person who is not a resident or citizen of the country where the dispute took place. No court decisions can influence the trustee, and your assets will be safe.

The debtor will have no assets associated with his or her name or will possess just a small amount. And the creditor will face the situation when the debtor will no longer own the assets that the creditor wanted to seize.

Fraud

Fraudulent actions, also known as fraudulent transfers, are the actions performed following an incident. More exactly, the assets were transferred to the trust following some problems and proceedings.

The laws differ a lot between jurisdictions, but it is equally illegal in any country to evade liability on an international level as a result of the actions that have been (or will be) performed.

How is that related to asset protection? Well, a certain period of time should pass between the transfer of assets to the trust and the moment when the assets are attacked by the creditor. This term may equal from 4 to 10 years in the majority of jurisdictions. Consequently, if you set up a trust and get divorced one year later, the trust may be considered a fraudulent scheme. This means you have to take care of asset protection in advance!

People who want reliable asset protection are looking for trust jurisdictions where the term of recognizing the trust as a fraudulent scheme is very short. For example, the Cook Islands and Nevis propose a term of just two years during which the asset protection trust can be recognized as fraudulent.

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Offshore Pro Group can help you quickly set up an offshore trust in Nevis, which will protect your assets for many years ahead.

Enforcement and Countermeasures

Why cannot the court enforce the founder to return the assets from the trust?

It can do so, in fact, but it never does. Suppose, the court decided that the debtor should pay the assets to the creditor, but the debtor said that he no longer possesses these assets as they are now owned by the trustee. As a result, the assets are protected by a trust in a strong trust jurisdiction.

The creditor may return to court and obtain a claim for the debtor to request the return of assets from the trustee to be later repaid to the creditor. But the trustee will deny this request as he cannot return the assets from a non-revocable trust: he cannot return the beneficiaries’ assets as the instructions from the founder were coerced. The assets are blocked and cannot be retrieved.

Following that, the creditor will have two ways: he can try obtaining a court decision in a court of trustee’s jurisdiction to seize the assets or get involved in endless litigation.

Obtaining a positive decision on assets seizure in the court of the jurisdiction where the trust was established is a hopeless project. For instance, Nevis obliges the creditor to purchase a state bond that costs ECB 25,000 (circa EUR 8,200/USD 9,200) before the start of court proceedings. A creditor with sufficient funds can use the coercion caveat and attack the asset protection trust many times, while the founder will not be able to give any instructions to the trustee.

Theory and Reality in the Asset Protection Sphere

What can we say about asset protection in reality? This is a boundless area, and everything depends on the situation. There are very few cases when someone won litigation with regard to protected assets.

Every detail about asset protection is important as no one knows what the future keeps in store for you. The jurisdiction of the founder, trustee, and beneficiary may play an important role, just as the location of the bank where the assets are stored. The way of using assets in the trust (whether they are stored, invested, or spent) is just as important. All that may have a dramatic influence on the court decision regarding asset seizure when the trust is considered in this or that case.

Nevertheless, trust remains one of the most accessible and important instruments for asset protection. The main thing for an asset protection trust or a similar structure to be established correctly, with minimum risks involved.

How Asset Protection Strategies Work

There are a lot of other asset protection strategies that people can use to limit the influence of risks on their property. You will find some of the most popular asset protection options below.

Asset Division

One of the good asset protection options is to divide them between separate legal entities, such as trusts, corporations, partnerships, and limited liability companies. Thus, we have a situation when your personal property is kept separately from the assets used in business. In case of any litigation against one legal entity, the personal property and assets owned by other companies will be protected.

Insurance for Asset Protection

Insurance is a popular asset protection instrument. It provides for the conclusion of agreements with insurers that cover different risks, including:

  • liability with assets
  • material damage done to assets
  • loss of income

Offshore Accounts for Asset Protection

Keeping funds and assets in offshore bank accounts makes it possible to ensure additional confidentiality and use local corporate laws for asset protection. For instance, the legal claims issued by foreign authorities are invalid in some jurisdictions.

Internal Asset Protection Trusts

These are the trusts that can only be created in some US regions (for example, in Florida). Internal asset protection trusts make it possible for the founder to be a discretionary beneficiary, but simultaneously ensure protection from claims on the part of the founder’s creditors. A correctly established trust enables the individual to retain access to assets while keeping them protected from many kinds of creditors’ demands.

It should be noted that asset protection is not provided in most states to the person that puts his assets in the trust where he is a beneficiary.

Limited Liability Company (LLC) for Asset Protection

This type of company is one of the most popular instruments to ensure protection of owners’ liability. In case of bankruptcy, the beneficiary can only lose the assets owned by the company. LLC creditors cannot seize the owner’s personal assets.

Transfer of Ownership

Any citizen can transfer the legal ownership of the asset to his or her spouse, relative, or attorney to protect it from the creditor’s claims. It allows the debtor to own its asset without the risk of its seizure by creditors. However, this also poses a great risk in case of a conflict with family members or friends (for example, in case of divorce) as they will legally own the assets.

Exceptions

Court claims are null and void for a number of assets. For example, you cannot arrest retirement accounts upon the creditors’ demand in accordance with US federal laws and the Employee Retirement Income Security Act. Also, there are exceptions in many states with regard to a certain amount of own capital in the main place of residence (home) and other personal property, such as clothes.

It’s up to you to decide whether to set up a trust or use other methods of asset protection. However, instruments like an offshore structure with an account in a reliable bank are mandatory for everyone. Asset protection planning may seem not so important today, but it is surely vital for your future.

If you are interested in the possibility of building an offshore structure for asset protection using a private foundation in Panama or any other offshore instrument, contact Offshore Pro Group experts for advice at [email protected].

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Offshore Pro Group also provides the services of preparing a full package of documents to open an offshore account that you will need to work with a foundation or a trust. We provide free consultations on opening an offshore bank account.

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