Asset protection
From Wikipedia, the free encyclopedia
Asset protection refers to a set of legal techniques for protecting one's belongings against lawsuits and judgments. The following article is based primarily on US law.
These techniques range the gamut from titling property ownership in certain ways (such as joint ownership and ownership by entireties) to the conversion of assets into forms that are exempt from seizure by creditors (such as a homestead exemption, or equity stripping, or collaterization of accounts receivable).
All forms of asset protection must be done before there is any claim against you. If not, you may have a fraudulent transfer.
There are various forms of asset protection, and if possible, layer your assets with the different protections available. Talk with lawyers, CPAs, and asset protection specialists to see what they have to offer, and choose something that you understand, and that is legal.
The offshore asset protection trust (APT) is one of the safest methods of asset protection available when established by professionals before a suit occurs in a legal and tax neutral way, the results are staggeringly effective at limiting creditor access.
The legal theory of the offshore asset protection trust is that domestic courts will meekly acquiesce when the convoluted structure of the trust and so-called "duress" contingencies presented evidence that a debtor could not retrieve assets when a US court order was issued, because the trust is controlled by a foreign trustee. Offshore asset protection trusts work, but generally only for debtors who have the foresight to set them up in advance of a lawsuit.
However, some asset protection planners now disagree with the use of offshore asset protection trusts. In 1999, two legal decisions in the United States were decided that ordered the repatriation of funds from offshore asset protection trusts after the trust settlors were sued. The trusts appeared to work when the foreign trustee refused to repatriate the assets pursuant to the courts' orders. The legal reasoning was that it was impossible for the trust settlors to have the trustee repatriate the assets because the trust documents forbade the repatriation of the assets due to duress.
However, the courts disagreed with this reasoning holding that the settlors still retained some control of the assets. When the foreign trustee refused to return the assets, the settlors of the trust were thrown in jail and fined for every day the funds were not returned. In one of the cases, the trust funds still remain in the offshore asset protection trust but the settlors may not retain any rights to the funds because they had to appoint the United States governmental agency as trustee to get out of jail.
Domestic asset protection trusts now exist but are relatively untested in legal theory, and were weakened by the 2005 Bankruptcy Reform Act, and also have the disadvantage that the trust companies are within US jurisdictions.
The 2005 Bankruptcy Reform Act weakened several techniques of asset protection, to the point that good asset protection now prefers to avoid bankruptcy whereas previously it was frequently advantageous to declare it.
