We regularly use about two dozen different structures to protect our clients’ assets on a world-wide basis. The structure we use depends on how well a client would like to protect his assets, how aggressive the creditors will be, and the specific assets that need to be protected. When we dug down to examine which structures we use most often, we came up with the following three pillars of asset protection.
The limited liability company is a simple and easy to implement and use structure. There are no tax consequences and there is complete freedom to retain control over the assets and to revert the assets back to the client. LLCs work well when we are setting up the asset protection structure ahead of any possible issues the client may face. LLCs are used to protect liquid assets, rental real estate, business interests, collectibles, and intellectual property. Given the low cost and the low effort of set up, the LLC provides the best bang for the buck. Mind, it does not provide the highest level of protection, as the corporate veil of an LLC may be pierced under the right circumstances.
Despite all the talk of Wyoming and Delaware LLCs, it usually makes little difference where an LLC is organized. Our client either owns an asset directly and it is reachable by his creditors, or he does not own an asset and instead owns an LLC interest. There are many nuances to correctly structuring an LLC for asset protection, including asset protection-tailored distribution clauses, buy out rights, and management succession issues.
An irrevocable trust is a more expensive and more complex structure. There are still no tax consequences, if structured correctly, and some degree of control may be retained by our client with the proper trust drafting. With the trust it is not as easy to move assets in and out, and irrevocable trusts are better suited for assets like a personal residence or an investment account that the client does not need access to. The irrevocable trust will accomplish a higher level of protection than an LLC, but will carry higher costs and will be harder to administer.
There are different types of irrevocable trusts and different methods of funding these trusts. We will usually customize a trust for each client based on their needs and circumstances. All good asset protection trusts will be funded for the benefit of a third-party (often, the children of the settlor), and will include the use of a trust protector.
An offshore structure, including the movement of funds offshore, is the best asset protection structure. These structures very rarely get challenged and when challenged have an exceedingly high likelihood of success. The offshore structures carry tax reporting obligations, and like irrevocable trusts, make it somewhat more difficult for the client to retain control and access to the assets (but both may be possible). The use of offshore structures should be limited to assets that are liquid in nature or can be easily converted to liquid form.
There are variations on offshore structures and we use many different jurisdictions to set up offshore trusts, entities, and bank accounts. It is important to use reputable and trustworthy offshore service providers. Each offshore bank and trust company that we use for our clients are vetted by our attorneys and we have worked with many of them for 10-20 years.
At Maximum Asset Protection, we can help you decide which asset protection structure is best for your circumstances. Contact us today at 818-933-3838 to learn more.