Asset Protection Trust
Many investors put money into an asset protection trust to protect their funds against legal action and creditors. An individual's personal holdings cannot be seized without a court order. Property, financial accounts, and other valuable resources might have to be liquidated through bankruptcy proceedings or payment of civil claims. Otherwise known as common law trusts, these plans structure personal or business holdings into a safe and legal accounts in other countries that will not recognize legal judgments from U.S. courts. Some investors use these offshore banks illegally to hide money from the Internal Revenue Service (IRS). But many investors use asset protection trusts legally and legitimately so that holdings are not left vulnerable to legal attack.
Everyone is at risk of being sued, and anyone can establish a protective trust. People who drive can be involved in auto accidents. Those owning property can be sued if someone is injured on that property. But people who utilize an asset protection trust usually do so for very specific reasons. Professionals who are at risk for lawsuits such as doctors, lawyers, and accountants use common law trusts to protect themselves and their financial holdings. Although many in these occupations purchase insurance for these risks, policies often don't cover all of the losses incurred. An asset protection trust shouldn't be used instead of insurance but as a failsafe to protect some funds from being targeted in a legal suit. Wealthy individuals will often use such plans to secure inheritance funds for heirs and avoid extra inheritance taxes often imposed on passing wealth from one generation to the next. These accounts are also helpful for individuals who foresee potential future crisis such as a divorce, bankruptcy or illness that might lead to litigation. Others use them as an alternative to pre-nuptial agreements or to protect retirement accounts.
A trust is simply a contract. An individual (trustor, grantor, or sellor) "trusts" his or her financial holdings to a manager (a trustee) that will eventually benefit one or more beneficiaries, which could be the trustor himself, a spouse, children or grandchildren. An asset protection trust is an irrevocable trust in which the owner releases ownership and control of the property to a legal entity usually in an offshore account. Once the trust is creator, it cannot be revoked for a determined number of years. The grantor remains in control of the assets and distribution of any income earned. Techniques vary depending on the type of the account and the location of the property. Since financially holdings are established under foreign jurisdiction, they are subject to the laws of that country.
Although an asset protection trust is protected from the legal civil action of creditors and other individuals, it is still subject to U.S. taxes on any earnings. Plans are typically tax neutral, which means that no additional income, estate, gift or excise tax, but they do not save on regular taxes. In 1997, amendments to the IRS code opened foreign trust to taxation. In 2005, the federal government changed the bankruptcy code to include a limitation clause that brings into question transfers into protective trusts ten years prior to a bankruptcy filing. The FINCEN department under the IRS focuses on locating offshore accounts that abuse tax laws and are used to launder money and other illegal activities. "Whose hatred is covered by deceit, his wickedness shall be shewed before the whole congregation." (Proverbs 26:26) Protective plans are still very viable means for people who want an extra level of security on a portion of their accounts. They just don't protect from U.S. taxation. Any U.S. citizen is subject to taxes on income regardless of what country the income originated. Individuals who wish to establish offshore accounts should consult real tax experts or lawyers with many years of legal knowledge and experience. Laws regulating what types of accounts creditors can access vary per state. Find legal counsel who is familiar with the laws of that particular state before opening any account.
Unfortunately, there is a thin line between legal asset protection trusts and fraudulent scams that are illegal and criminal. Unqualified people often disguise themselves as trained experts. Always check references and make sure the all experts are trained in both U.S. tax and international law. Don't trust foreign trustees who are not familiar with U.S. laws. Avoid anyone who operates on lies or deceptions. Plans should be established legally and properly through the law. Many scams originate out of Nevada, Alaskan or Delaware trusts. Beware of offshore bank accounts and credit cards with large processing fees. Expensive seminars or asset consultants that charge hundreds or thousands of dollars are usually useless. Eventually, the truth will come out. A tax bill will come due, a creditor will sue on a civil conspiracy claim or the U.S. government will sue on money laundering charges or tax evasion. In a worst-case scenario, the trustee will simply disappear with the entirety of the trust.
A qualified attorney or financial advisor can help individuals assess their risk and decide how much protection is needed with their financial holdings. The decision doesn't end with whether or not to get an asset protection trust. Individuals need to decide how to set up a plan, what role to play as grantor, trustee and beneficiary and what roles will be passed along to others. Even if the owner decides to take on all three roles, a separate beneficiary is usually designated in the event of the owner's death. A knowledgeable lawyer or advisor can walk an individual through the process as well as discuss the benefits and legal ramifications along the way. In whatever decisions are made, it is imperative to make sure they are executed legally and properly in accordance with the law.
Asset Protection InsuranceBasically, asset protection insurance is a form of risk management primarily used as a buffer against possible losses from lawsuits or unexpected catastrophic events. The Bible indicates that God is concerned about people's well being. That includes finances. Passages relating to financial health can be found throughout the Bible. "Beloved, I wish above all things that thou mayest prosper and be in health, even as thy soul prospereth." (3 John 2) Prospering includes insuring that a person keeps what he or she has worked so hard to obtain. In the simplest sense, insurance is defined as the transfer risk of from one entity to another. Premiums are paid to do this. Car or homeowners policies are prime examples. Several other types of policies are available to help property owners, businesses, and other professionals protect their assets. It can also be a useful technique to protect property from potential litigation and creditors. Asset shielding is a serious legal issue. And, there is a fine line between legitimate shielding and fraudulent actions. Generally speaking, insurance is considered legitimate and at times required by law. In fact, some laws permit shielding of assets to prevent individuals and businesses from suffering devastating loss. But, a policy should be only one part of a larger asset plan. Since property shielding is a legal issue, an attorney or financial expert should handle the arrangements and management of any plan.
Numerous arguments in favor of developing a plan and using asset protection insurance are available. Some programs are set up as hedge against lawsuits. In fact, potential litigation is the driving force behind asset protection. Arguably, America is the most litigious society in the world with the most practicing attorneys in the world. As a result, a person practicing a profession or running a business in the United States stands a greater chance of being sued. Unlike some methods of property shielding, which seek to conceal, hide, or place out of reach of creditors or civil judgments, asset protection insurance simply guarantees the owner will not be held financially responsible, it they ever are sued. In a legal application of the practice, asset protection is sometimes referred to as debtor-creditor law. It is a set of legal techniques incorporating statutory and common law designed to protect individuals and businesses from catastrophic losses that occur from unexpected hazards such as business failures, lawsuits, and civil money judgments. Asset shielding strategies are designed based on many factors. Again, an attorney or financial expert should be involved in the management of an asset plan.
Many types of asset protection insurance are available. Most are common and used daily. More uncommon are policies that can be bought to protect investment portfolios. In practice, the policy will pay an investor's beneficiaries the amount originally invested, if the investment account doesn't do well. But, research this type of policy thoroughly because there are some people in the financial world who believe an investment policy plays more on a person's fear of losing their money than on real necessity. Therefore, it may not be a good investment. Several reasons have been given for staying away from this type of asset protection insurance. First, it's expensive. Costs vary, but can be $50 or more per $10,000 invested. These types of policies are good for the company providing the policy because the chances of a person losing their entire portfolio to bad investments are low. It pays only the amount of money a person lost. So, if a person's portfolio started out at $50,000 and dipped to a value of $40,000 at the time of the person's death the company would only pay $10,000. Some financial experts believe a term life policy would be a better investment.
Another, and perhaps more valuable type of policy, is called guaranteed asset protection insurance. It is coverage offered as a supplement to automobile policies. GAP provides another layer of protection and covers certain types of losses not covered by most standard automobile policies. Basically, GAP pays the unpaid balance of an automobile loan, when the vehicle is a total loss. A general liability policy is designed to cover a variety of lawsuits. Malpractice is another type of coverage, but it's not just available to doctors. According to an online business site, lawyers, engineers, architects, real estate brokers, and other professionals can purchase a malpractice policy. Director liability insurance is available, as is what's called umbrella liability insurance, which takes effect when all other coverage has been exhausted. For example, if a person has a general liability policy for $50,000 but a civil judgment is for $75,000, the umbrella policy kicks in the additional $25,000. Finally, there is what's called an extended homeowner's insurance. Most homeowner's policies only cover claims related to the property itself. An extended homeowner's policy might cover events that occur away from the property.
Research all asset protection insurance companies before buying. And carefully discuss any asset protection plan, of which insurance is only one key component, with an attorney. Like some other business transactions, some insurance deals and sales people can be less than honest. There is a fine line between asset protection and fraudulent transfers of property. Federal and state law prohibits fraudulent transfers. Even if the transfer of assets is legally done, it might still have legal implications and is always an issue of morality. Creditors that have a legal right to the concealed property can suffer. An online search reveals that some asset protection insurance companies are involved with what's known as the offshore trust market. Unfortunately, according to several online legal sites, there are no clear lines between what is permissible and what is not. Insurance doesn't conceal any property; it simply protects the owner from losing property. When obtained from a reputable company, legality and morality should never be an issue.