What Is Asset Protection Planning?

You work hard to accumulate the assets you own. So, naturally, you want them to benefit you and your family, not someone else, such as a creditor or a lawsuit plaintiff. This is exactly what asset protection planning does for you.

Asset protection planning is part of your overall financial and estate planning. It consists of the legal strategies and documents you use to keep your assets out of the hands of people whose interests are adverse to yours. For instance, a properly structured asset protection trust can protect your assets from being invaded by the following:

  • Creditors
  • Judgment holders
  • Disgruntled former spouse

Asset Protection Trusts

One of the most effective ways to protect your assets is to establish one or more asset protection trusts. Unlike other types of trusts, these irrevocable trusts are specific in nature, tailored to the assets you plan to put into them, your risk of exposure and your comfort level. This, however, makes them more complex and complicated to set up. Your wisest strategy consists of obtaining the advice, counsel and help of an experienced estate attorney.

Domestic Asset Protection Trust

Not all states allow asset protection trusts. The Domestic Asset Protection Trust is currently recognized in the following 17 states:

  • Alaska
  • Delaware
  • Hawaii
  • Michigan
  • Mississippi
  • Missouri
  • Nevada
  • New Hampshire
  • Ohio
  • Oklahoma
  • Rhode Island
  • South Dakota
  • Tennessee
  • Utah
  • Virginia
  • West Virginia
  • Wyoming

Offshore Asset Protection Trust

Even if you live in a state that disallows domestic asset protection trusts, all is not lost. Your estate planning attorney can create one or more offshore asset protection trusts for you. Trust-friendly countries such as the Cook Islands can provide you the safe harbor you need for your assets. These countries do not recognize foreign court orders. Consequently, if someone obtains a judgment against you in the U.S., the most likely scenario, he or she cannot invade the assets in your offshore asset protection trust to pay the judgment.

Financial Privacy

Another benefit of an asset protection trust is privacy. No one other than you, the trust’s trustee and possibly your estate planning attorney knows what assets are in the trust or how much they’re worth. Creditors and plaintiff’s lawyers cannot discover them when attempting to determine your net worth and how many liquid assets you have.

Probate Avoidance

Finally, the assets you transfer to your asset protection trust are not subject to probate. This can save your estate and its heirs a substantial sum of money after you die.