What Is Asset Protection?

Asset protection comprises techniques, laws, and strategies that seek to protect assets that belong to an individual and businesses against claims of creditors to seize the assets legally.

Asset protection planning is useful for creditors who engage in developing and planning data collection strategies. They use asset protection strategies for additional security.

In the event of payment default, a borrower in possession of significant personal assets (high net worth individual) can use asset protection to cover their wealth. Companies such as Asset Protection Planners, Inc. can protect your home equity, retirement plans, and provide protection planning for family members, real estate asset protection, etc., which could be beneficial for first-time asset protection planners. 

What people should consider before the creation of any asset protection plan in the United States

Asset protection planning is more of the debtor’s side of creditor-debtor law. When borrowers are busy protecting their assets from creditors, the creditors are working tirelessly to devise asset collection techniques and strategies.

Here are a few vital points people should consider before asset protection planning.

Plan in advance

Preparation makes you ready for the thing that lies ahead. You don’t want to wait till a claim arises. Instead, it would help if you facilitated the creation of asset protection before claims arise. You don’t want your best asset protection measures and planning to be undone by fraudulent transfer laws.

Claims arise way earlier than laypeople would care to know.  As soon as you see a demand letter at your doorstep, you should start the asset protection planning process most convenient for you.

Don’t make asset protection planning a substitute for insurance

It is not advisable to substitute asset protection plans with professional insurance and liability – it should supplement insurance. Don’t buy into the myth that asset protection plans are scary to most plaintiffs.

Asset protection plans hardly pay legal fees in lawsuits.  Once a borrower is faced with fraudulent transfer claims of their assets, insurance supplements such asset protection plans as it helps debtors survive fraudulent claims. The insurance company pays to defend and settle any demands that may arise on behalf of their customers.

Beware of what to do with offshore money

Lately, cases prove a courts’ power to demand borrowers to bring their money back from offshore accounts. Such orders are referred to as reparation orders.  The debtor must comply with reparation orders, failure to which the court issues a bench warrant for contempt of court, holding them in jail until the money is paid back.

Once you are found liable for contempt of court, you may be sentenced to a 14-year jail term.

Bankruptcy fraud is not an option

Gone are the days when debtors would hide behind bankruptcy while retaining their assets happily. The year 2005 marked a paradigm shift of the bankruptcy laws in the United States as they changed, intending to leave debtors with nothing.

Even the exemptions of state homestead are limited substantially, and new bankruptcy code provisions make asset protection plans difficult in bankruptcy. The powers of judges to make borrowers produce their assets are hard to challenge.

Ensure you can explain anything you are asked about

Some questions might prove difficult to answer. However, a debtor can only be sure about their assets protection plans once they have a good explanation of how the assets are held or transferred.

How Does Asset Protection Work?

Asset protection planning depends on the analysis of factors that determine the degree of asset protection needs. When it comes to asset protection, four vital elements are involved:

  •  Identity of the debtor
  • Identity of the creditor
  • Nature of the claim
  • Nature of the asset

Identity of the debtor

If the debtor is an individual, it is essential to consider agreements (known as transmutation agreements) that show whether properties are shared by spouses equally or separately. It would be best if you ascertain the likelihood of a lawsuit for each spouse. This allows the assets to be transferred to the safer spouse before any lawsuit is filed. In some instances, the debtor may be an entity.  However, the individual who guaranteed the repayment must be held liable in case a lawsuit happens.  To ensure proper asset planning, it is vital to double-check the clause that holds an individual liable for an entity’s debt that might cause creditors to seize personal assets.

Identity of the creditor

This is very important in asset protection planning. If the creditor is a powerful entity such as the government, then they have more power to seize assets. The same can be said about private lenders.  If an individual is liable to an aggressive creditor, they may require more robust asset protection strategies.

The nature of the claim

The type and strength of asset protection required are determined by the kinds of limitations and claims included in the lending agreements. For instance, claims that can quickly be injuncted by the court are useful in protecting personal assets when faced with bankruptcy, requiring a lower level of asset protection plan.

The nature of the asset

 Not all types of assets are included in creditor claims. Many of them are exempt from creditor claims. Homestead exemption secures homeowners from the forced sale of their homes with the aim of debt repayment. Considering the types of assets included in the claim of creditors is crucial. It brings to light whether there is a possibility of assets being seized in the event of a lawsuit.

Strategies of Asset Protection

Making use of limited liability companies, corporations, and limited partnerships

Business owners of a limited liability company, corporations, and limited partnerships enjoy the government’s protection through limited liability laws.

Individual owners of these business entities are hardly held liable for the organization’s debt. Hence these people can use the above types of businesses to borrow credits and still remain exempt from having their personal assets seized when a lawsuit arises.

As much as the above method of asset protection seems convenient, it is deemed unethical to embrace it. The good news is that such people can evade the law entirely. This is because laws concerning fraudulent transfers have been enacted; therefore, individuals are held accountable for deliberately transferring their wealth to default or delay payment of debts.

Also, laws that allow creditors to permeate such business entities, holding individuals accountable, have been put in place.

By making use of asset protection trusts

Asset protection trusts (ATPs) can also be referred to as trust banks that hold assets per the settler’s discretion. These secure assets from creditors. Asset protection trust is commonly deemed as the most robust method of protecting assets.

As long as assets are part of asset protection trusts, they are not legally entitled to the beneficiaries who hold a  fair and equal interest in the trust assets. While in asset protection trust, such assets are secured from creditors with the utmost care not to breach tax evasion laws.

Major drawbacks come to play when ATPs are put to use. Once the trust is created, it can hardly get revoked or overturned because it involves legal ownership power that must be surrendered for asset protection.

An asset protection trust often has spendthrift clauses that seek to block the use or sale of any trust asset for credit repayment. However, the case is different under some circumstances.

By transferring property rights

Legal rights to an asset can be transferred from one spouse to the other. This arrangement is also possible among relatives or friends who trust each other. These transfers are aimed at securing the assets from the creditors’ claims.

The debtor comfortably possesses their wealth without having to look over their shoulders for creditors. The only displeasing thing with this method is the risk it poses in the event of a misunderstanding between the debtor and their spouse, friend, or relative.

However, in some jurisdictions, debtors are held accountable once they transfer their assets fraudulently. They are held liable for deliberately delaying or defaulting on payment, and it narrows down to jail-time or fines according to the law.

Bottom-line Of Asset Protection

An asset protection trust helps borrowers insulate their trust assets without bringing in any illegal measures such as concealment, contempt, fraudulent transfers, tax evasion, and bankruptcy. With the plan, resulting in things such as jointly held property with a spouse, relative, or trusted friends is an easy and legal way to protect assets as long as you don’t attract lawsuits for fraudulently transferring assets. Consult Asset Protection Planners, Inc on the various asset protection planning strategies and the debtor-creditor law. They provide their customers with practical solutions in different areas.