Protected Assets: Everything You Need to Know
Creating protected assets is achieved by drafting an asset protection plan. This process prevents assets from being seized by creditors or through legal claims.3 min read
Creating protected assets is achieved by drafting an asset protection plan. This process prevents assets from being seized by creditors or through legal claims. Assets of the debtor, known as nonexempt assets, are restructured as assets or exempt assets that will be unable to be seized in the event of a claim or judgment.
An asset protection plan should be drafted long before any claim is made. When creating the plan, overall goals should be considered. These include:
- What are your short-term financial goals?
- What are your long-term financial goals?
- What are your estate planning goals?
A proper plan created before a claim is made will prevent any issues when attempting to protect assets. If a plan is made after a claim, they will most likely be reversed as it will be seen as a fraudulent transfer of assets.
How to Protect Assets
Each type of asset you are looking to protect will have different requirements. For example:
- Each portion of real estate should be put into a separate land trust. This prevents your name from appearing in a search of public records.
- The beneficiary of a land trust should be an LLC or limited liability company. When the property is in a trust, the property is protected from any legal claims made against you. This does not apply to your personal home because it falls into a separate tax category.
- When protecting cash, amounts of $100,000 or less will be most protected under an LLC. Nevis LLC, a Caribbean island, offers the most secure protection jurisdictionally.
- If more than $100,000 needs protection, an offshore asset protection in a location such as the Cook Islands would be the best legal option.
- Title holding trusts are used for automobiles to keep ownership private.
Ten Rules for Asset Protection Planning
- Planning should always begin before a claim is made. If planning is attempted after a claim is made, the plan may be dismantled through fraudulent transfer law.
- If planning starts after a claim is made, problems will occur. The debtor and other participants could face responsibility for any attorney fees of the creditor and the possibility of a bankruptcy discharge will be in question.
Asset protection plans are considered tax neutral, meaning that tax liability is not affected on any of the assets put into a legal plan. This includes worldwide income, which must be reported or fines and criminal charges may be levied.
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