August 2016

Asset Protection Planning

Asset protection planning stems from the principle that just as you have no obligation to pay more than your fair share of taxes, you have no obligation to hold your assets in such a manner that maximizes their risk of loss to your future creditors. While the Internal Revenue Code and regulations set out the rules for income tax planning, the rules of fraudulent transfer establish the basic guidelines for asset protection planning.

Proper planning begins with a solvency analysis. In other words, do your assets exceed your liabilities? Strategies will be implemented for only a portion of the unencumbered assets. This nest egg can be protected from your unknown future creditors.

Planning techniques include the use of all of the following: corporations, limited partnerships, LLCs, LLPs, trusts, retirement plans, life insurance, annuities, homesteads and other exemptions, and foundations. Combinations of these offer even greater protection opportunities.

Looking at Trusts specifically, a number of U.S. states have enacted legislation for asset protection trusts. Notable among these are Delaware, Alaska, and Nevada. Foreign jurisdictions have offered laws that are more protective of assets placed in trusts for an even longer time. These include Bahamas, Cayman Islands, Cook Islands and Liechtenstein. Protection trusts, whether domestic or foreign, can have complex income, estate and gift tax consequences and should be established only with the assistance of experienced professionals.

While asset protection planning can be done as a standalone endeavor, it is often helpful to do it in connection with other estate planning as synergistic opportunities are common. If you believe that some of these techniques might increase your peace of mind, please call us and schedule an appointment to further discuss your situation.