The First Pillar of Asset Protection

The First Pillar of Asset Protection

The First Pillar of Asset Protection is this: Creditors and Con Artists Cannot Take Your Assets Away from You Anywhere in the U.S., Even in Bankruptcy. Many lawyers, life insurance salesmen, and financial planners say they do “asset protection.” Yet their solutions are only partial and only work in limited circumstances. (Life insurance pays out only when you die, for example. Not a great solution if you want protection from lawsuits during your lifetime.) Are you looking for partial solutions? Or do you want to know that your life savings and family wealth is absolutely protected? If you are like our other clients, you want comprehensive protection.

Buying Asset Protection Is Not Like Buying a Car

When you buy a car, both you and the seller understand that you will be driving it. If the car cannot be driven, there is no way for the seller to hide that fact from you. Someone will be driving it off the dealer’s lot after the sale. There is no way to fake that.

Of course, there are things that the dealer can hide. For example, I once represented the estate of an auto mechanic who restored vintage cars. After he died, a buyer of one of the cars made a claim that the deceased mechanic had fixed the floorboard with cardboard and tape. Things like that can be hidden until it rains, or the person’s foot falls through the floorboard.

Hidden flaws in motor vehicles (such as cardboard in the floorboard or brakes that do not work) are normally covered by a state’s Lemon Laws. Such statutes make it possible for a purchaser to return the vehicle and get her money back.

Asset protection plans are not like cars.

Unless you are an experienced attorney, you won’t know if your trust and other documents will work until after someone gets a judgment against you and the creditor’s attorney starts investigating your assets. In addition, there is no Lemon Law statute for faulty legal documents. You could have a malpractice claim against the attorney who sold you the faulty asset protection plan. But that’s not very comforting after you have a debt collection attorney hauling you into court for debtor’s exams and seizing your bank accounts and other properties.

Two popular asset protection techniques that do not work as advertised – and do not qualify under the First Pillar of Asset Protection – are Domestic Asset Protection Trusts (DAPTs) and Foreign Asset Protection Trusts (FAPTs). The reason that they offer poor protection is that they are Self-Settled Trusts, as explained in the section below.

I created the First Pillar of Asset Protection to serve as a litmus test. Either a trust or other document complies with it, or it does not. The following discussion concerns some of the legal structures used by self-proclaimed asset protection attorneys. The examples below are not exhaustive of the various ways experienced asset protection attorneys protect their clients’ assets. They are provided so you can see what complies with the First Pillar and what does not.

Self-Settled Trusts

Before we dig into the details of these, you need to understand some terminology.

Settlor: The person who signs a trust and then transfers assets to it.

Trustee: The person who holds title to property transferred to the trust and manages it according to the terms of the trust document.

Beneficiary: A person for whose benefit the trustee is holding the trust property.

Self-Settled Spendthrift Trust: A trust in which the settlor names himself a beneficiary, while at the same time stating that the trust assets are not available to pay his debts or obligations. This is usually shorted to simply “self-settled trust.”

A Domestic Asset Protection Trusts is created under the law of one of the states that permits them. Currently there are 17 states that permit DAPTs. They are Alaska, Delaware, Hawaii, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming.

A Foreign Asset Protection Trusts is created in one of the non-U.S. jurisdictions that explicitly permit self-settled trusts. Examples include the Isle of Mann, Cook Islands, Nevis, Belize and the Bahamas. The strength of such trusts is that no foreign country honors U.S. judgments. So, the theory is that your creditor would sue you in the U.S. and get a judgment. At that point, they would conduct “discovery” (a legal term meaning that they use formal civil rules to find out information such as what assets you own). They then discover that you have money with a Cook Islands trust company. But they have to sue you in the Cook Islands again (because the Cook Islands does not recognize U.S. judgments). This requires that your creditor hire a local Cook Islands attorney to start a new lawsuit. And by the time this has happened, the statute of limitations has probably expired. So, your assets are protected.

However, YOU are still in the U.S. And the U.S. court has personal jurisdiction over you. So, it could find you in contempt of court if you are unable to convince the Cook Islands trust company to pay obey the U.S. court’s order and pay your creditors. Punishment for contempt of court could include fines and imprisonment until your debts are paid.[1]

Self-Settled Trusts Are Vulnerable

The Uniform Trust Code Section 505 provides:

With respect to an irrevocable trust, a creditor or assignee of the settlor may reach the maximum amount that can be distributed to or for the settlor’s benefit. If a trust has more than one settlor, the amount the creditor or assignee of a particular settlor may reach may not exceed the settlor’s interest in the portion of the trust attributable to that settlor’s contribution.

This principle is also found in the RESTATEMENT (SECOND) OF TRUSTS Section 156(2) and RESTATEMENT (THIRD) OF TRUSTS Section 58(2).  Courts have adopted this principle has in hundreds of cases throughout the country. And many states have enacted statutes with this identical language.  For example, see Alabama Code Section 19-3B-505; Ariz. Rev. Stat. §14-10505(A)(2); Cal. Prob. Code § 15304; Ga. Code Ann. § 53-12-28(c); Florida Trust Code Section 736.0505(b); Ind. Code Ann. § 30-4-3-2; Kan. Stat. Ann, §33-101; La. Rev. Stat. Ann.§2004(2); Mont. Code Ann. § 72-33-305; N.Y. Civ. Prac. L. & R. § 5205(c); Pennsylvania Code Title 20 §7745; Tex. Prop. Code Ann. §112.035(d); Wis. Stat. Ann. §701.0505(1)(a)(2). Also, here are some sample cases that support this point:

  • In re Brooks, 844 F.2d 258, 261 (5th Cir. 1988) (“Like all other states that recognize spendthrift trusts, however, Texas forbids a person to place his own assets in trust and then, by a spendthrift clause or some other restraint, to shield the trust from claims of his current or future creditors. A person is not allowed to make provision for his own support or comfort to the prejudice of his creditors.”)
  • Dexia Credit Local v. Rogan, 624 F.Supp.2d 970 (N.D.Ill. 2009) (In a case concerning the interpretation of an offshore self-settled spendthrift trust created by the Illinois judgment debtor, the court held that under Illinois choice-of-law rules, Illinois law, rather than Bahamian law, governed as a matter of Illinois public policy.)
  • Toni 1 Trust v. Wacker, 2018 WL 1125033 (Alaska, Mar. 2, 2018). (In a case involving an Alaska Asset Protection Trust, the Alaska Supreme Court held that an Alaska statute cannot prevent Montana courts from applying Montana fraudulent transfer law.)

Why are Self-Settled Trusts So Popular If They Are So Vulnerable?

The idea with a self-settled trust is that you can transfer things to a trust and remain a beneficiary of that trust, while at the same time having everything in the trust protected from future creditors. You have access to the trust because you are a beneficiary. But your creditors don’t. And this give you peace of mind.

Sounds perfect right? That’s one reason that DAPTs have become so popular. “Domestic Asset Protection Trust” sure sounds impressive. Anything called an “Asset Protection Trust” must be pretty serious, right? Bona fide estate planning attorneys sell them to clients. You can buy them on Legal Zoom. DAPT forms are offered as part of the document packages that thousands of attorneys across the U.S. subscribe to.

Another reason that DAPTs have become so popular is that states want to support their local trust companies (and thus their state economies). After all, the trust companies make 1% to 1.5% of assets under management. And the states can tax that income. The result is that more states keep jumping on the DAPT bandwagon. Currently, 17 states have legislation authorizing them.

Discretionary Support Trusts

Proponents of DAPTs claim that the Toni 1 Trust case was a narrow decision. They say that there are many issues that still remain to be decided by the courts.  For example, a WealthManagement.com article[2] focused on the fact that many states have discretionary support statutes that protect the trust assets from the beneficiary’s creditors.

Under the terms of a discretionary support trust, the trustee has the discretion to decide how much of the trust funds are needed to support the beneficiary. The trustee’s discretion may be limited by a support standard. For instance, the trust instrument may require the trustee to provide the beneficiary with a reasonable standard of living or to enable the beneficiary to maintain the lifestyle to which he has become accustomed. When exercising his discretion with regards to distributing money to the beneficiary, the trustee has a duty to inquire to determine the amount of support that the beneficiary needs. Since the purpose of the trust is to provide support for the beneficiary, he cannot alienate his interest in the trust. Thus, the beneficiary’s creditors cannot attach the funds in the trust. However, creditors who supply the beneficiary with necessaries like medicine may recover from the trust. In a growing number of jurisdictions, the children and spouses of the beneficiary of a support trust may enforce claims for child support and alimony.

The WealthManagement.com article cited above discussed that DAPTs should be recognized in other states under the U.S. Constitution’s Full Faith and Credit clause and conflict-of-laws statutes and case law. However, the article also admitted:

At this point, there’s little direct case law regarding exactly what factors and what weight a court will use to decide DAPT-related conflict-of-laws issues when creditors’ rights are involved either inside or outside of bankruptcy.[3]

Two situations in which a DAPT could work.

Nevertheless, there are two situations in which a DAPT could work. The first situation has two requirements. First, you have to reside in the same state that has the laws authorizing your DAPT. In other words, if you have a Nevada DAPT, you need to live in Nevada. (Or if you have an Ohio DAPT, you need to live in Ohio. And so forth.)

Secondly, the trust needs to be set up and fully funded more than ten years prior to any legal claim rising. This ten-year rule is from 11 U.S.C. section 548(e). That federal law created a new ten-year limitations period for transfers to self-settled trusts that are meant to hinder, delay or defraud creditors. You don’t want to be in court trying to explain that you set up an “Asset Protection Trust” for some purpose other than to “hinder, delay or defraud.” The judge will be looking at you like a teacher looks at a child trying to explain that the fidget spinner helps her focus in class. By the way, why are we talking about bankruptcy? Because a class of creditors can push you into an involuntary bankruptcy if your DAPT is less than 10 years old. Now how safe do you feel with your “asset protection trust”?

The second “situation” is more luck than law. Let’s say that you didn’t fit in the narrow 10-year-old-trust exception above. But your creditors hire an attorney who isn’t very bright. That attorney doesn’t read the case law and doesn’t talk to a bankruptcy attorney. And that not-so-bright lawyer simply assumes that an “asset protection trust” must be a very serious thing because of its name. So, the lawyer decides not to fight the trust. Sound unlikely? Well, at least one well-known lawyer actually says that DAPTs work because of the “fear factor.” The idea is that creditors will assume that something with such a serious name must be impenetrable. Or the creditors would assume it would cost too much in legal fees to get a court to unwind the DAPT. I have heard of that working. But judges and lawyers are getting wiser. I would not be relying on “fear factor” to protect my assets for much longer.

But aside from those two situations, there is no guarantee that Domestic Asset Protection Trusts will work in your case.

VERDICT: DAPTs fail to meet the standard of the First Pillar of Asset Protection.

WealthManagement.com claims that “Over 435,000 financial advisors and wealth professionals rely on WealthManagement information, editorial insight, and analysis to assist them in their client activities to improve practice management and gathering of assets.”[4] So, they are an authority in the legal and financial fields.

The WealthManagement.com article cited above gives a logical and comprehensive argument for the use of DAPTs. However, it comes far short of being able to establish that with a DAPT, “Creditors and con artists cannot take your assets away from you anywhere in the U.S., even in bankruptcy.”

Foreign Asset Protection Trusts

There are over 30 cases defeating FAPTs.[5] Nevertheless, they could be appropriate in the right situation. If you have liquid assets that can be held outside the U.S., an FAPT could work. However, many U.S. citizens are still reluctant to use FAPTs for two reasons. First is the idea that they have to trust a company in a strange (often third world) country. This can easily be solved, however. Rather than giving control over to a foreign trust company, you have that trust own a foreign limited liability company. Then you can be the sole manager of the LLC.

Second, the U.S. has imposed steeper requirements for disclosing accounts held outside the U.S. There is no way around this second issue other than to find a competent accountant who can ensure you file the necessary forms.

VERDICT: FAPTs fail to comply with the First Pillar of Asset Protection.

A FAPT will protect a U.S. citizen’s assets outside the U.S. There is no way that a U.S. court can get to your property, money or investments located outside the U.S. However, as discussed previously, a U.S. court could find you in contempt of court for failing to instruct your trustee to turn over assets, and then incarcerate you. In that case, your assets would be protected, but you would not be. A U.S. court can also decide that self-settled trusts are against the state’s public policy. For example, Texas and Illinois both have cases that have ruled in this way. As a result, either a Texas or Illinois court could seize real property in those states and disregard that they are owned by a FAPT.

The First Pillar is concerned with assets in the U.S. Because you have no assurance that a U.S. court will honor the law of the foreign jurisdiction and abstain from ordering the seizure of your U.S.-based bank accounts, U.S. real estate, or other assets located in the U.S., FAPTs do not comply with the First Pillar.

Special Power of Appointment Trust Complies With the First Pillar of Asset Protection

A Special Power of Appointment Trust (SPAT) is an irrevocable trust with a special power of appointment. The special power of appointment allows the donor (person who transferred assets to the trust) to later receive the property back if he/she ever wants to unwind it.

The SPAT is an old reliable tool. Estate planning lawyers are familiar with using special powers of appointments. Special power of appointments add flexibility to trust documents. Yet, many lawyers fail to recognize other powerful uses of this tool. Special powers of appointment can protect against estate taxes. They also provide flexibility in how the trust is taxed. And they provide creditor protection.

The concept of a power of appointment has been a part of the English common law for centuries. The concept is well recognized in all 50 states and in the federal tax laws. Some minor variations in the law about powers of appointment have occurred over time. But, the basic legal principles about powers of appointment have never varied.

Terminology.

Before we dive into a detailed discussion, here are some key terms.

A power of appointment enables a designated person to name a recipient of the trust property.

The “donor” is the person who created the power of appointment. This is the settlor usually. The “donee” is the person who may exercise the power. The “permissible appointee” is a person in whose favor a donee may exercise the power. An “appointee” is a person to whom a donee makes an appointment of appointive property.

A “general power of appointment” is exercisable in favor of the donee or the creditors of the donee. It does not matter if the power is also exercisable in favor of others. A power that is not general is a “special” or “nongeneral” power of appointment.

Asset protection of a special power of appointment trust.

Property subject to a special power of appointment is exempt from the holder’s creditors. The donee of a special power of appointment doesn’t have a property interest in the property. This is because the donee cannot exercise the power for the economic benefit of the donee. Thus, the property subject to the power of appointment is not included among the property of the holder of the power. This holds true in the contexts of judgment collection and bankruptcy. It is also true for divorce, Medicaid qualification and estate tax exclusion.

A permissible appointee also has no property interest in a power of appointment. This includes the person who originally transferred assets to the trust. After all, most special powers of appointment include everyone in the world as a permissible appointee. (Except for the donee, the donee’s estate, and the creditors of the donee and the donee’s estate.) Thus, a court would have no grounds on which to include the interest of a permissible appointee in any case involving the donee’s property. This includes judgment collections, bankrupty, divorce, Medicaid eligibility, and estate tax inclusion.

Gift taxes

DAPTs and SPATs can all avoid gift tax at the time of the initial transfer. The lawyer drafting the document needs to make the gifts to the trust incomplete. For example, the settlor could keep the ability to name new beneficiaries. (Remember that a “settlor” is the person who signs and then funds a trust.) He could also keep the ability to change the interests among the beneficiaries.

Both types of trusts can also be “intentionally defective grantor trusts.” (The name comes from the fact that the trusts include a “defect” that causes the income to be taxable to the settlor.) These are also called simply “grantor trusts.” Such a trust is excluded from the settlor’s estate for gift and estate tax purposes. But the settlor pays any income tax. DAPTs and SPATs can both include grantor trust provisions.

An example to show benefits of a special power of appointment trust

Imagine that Billy and Bobbie Sue both create intentionally defective grantor trusts. They each transfer significant assets to the trusts. This removes those assets from their taxable estates. Bobbie Sue’s trust also includes a special power of appointment. This allows her brother to appoint assets to any person other than himself, his estate, or the creditors of the brother or his estate. If Bobbie Sue ever wants the assets transferred back to her, her brother can do that. This could be important if Congress ever repeals the estate tax. It could also be important if Congress ever increases the estate tax exemptions while maintaining the step-up in basis for property a decedent’s estate.

This ability for Bobbie Sue to get the assets back could also be important if she falls on hard times and needs the money. Or maybe Bobbie Sue decides that she wants to restructure how her children receive their inheritances.

Billy’s trust does not include this option of transferring the assets back. He has no way to enjoy the assets in the trust, and the trustee has no power to give them back to him. (That is, unless his trust is a self-settled trust. But then it has questionable asset protection, as previously discussed.)

Variations to the Special Power of Appointment Trust: Either the Settlor (Bobbie Sue in the example above) or the Trustee (her brother) could be given the Special Power of Appointment. If the trustee is given the Power of Appointment, it would be important not to have any assets in the trust that the trustee could transfer away. The terms of the trust will typically prevent this. But a trustee with bad intentions could still do it. In that case, the SPAT should only own assets that the trustee cannot transfer. An example would include a limited partnership interest that requires you (the General Partner who controls the limited partnership) to consent to any transfer of a partnership interest.

Are the trusts supported by state case law?

Statutes that allow asset protection for a self-settled trust are new and untested. For that reason, there are few cases supporting the asset protection of such trusts.

On the flip side, centuries of case law support SPATs. The creditor of a permissible appointee cannot reach the assets of a special power of appointment trust. This is consistent throughout all 50 states and in federal bankruptcy courts. Also, a special power of appointment trust has the benefit of basic logic. If the settlor has the special power of appointment, then the class of permissible appointees includes everyone except the the donee, the donee’s estate, and creditors of the donee and the donee’s estate. (If someone else has the special power of appointment, then the settlor could be a permissible appointee.)

Will the trust work in a non-DAPT state?

The historical rule is that the assets of a self-settled trust are available to the claims of the settlor’s creditors. This is the rule in most states. A state that does not grant asset protection for self-settled trusts will probably not uphold the laws of a DAPT state. Doing so would violate the non-DAPT state’s public policy. A trust is generally governed by the law of the state spelled out in the trust agreement. However, that would not be the case if that state’s law is contrary to a strong public policy of the state where the settlor lives.

In contrast, the asset protection provided by a SPAT is not dependent on the state where the parties live. It’s also not dependent on the law of the state where the matter is adjudicated.

Will the trust hold up in bankruptcy court?

A person who files bankruptcy needs to disclose any trust that names him or her as a beneficiary. There is now a ten-year limitations period for transfers to DAPTs. This applies to transfers to DAPTs intended to hinder, delay or defraud creditors. The bankruptcy court may be unable to bring the assets of a DAPT into the bankruptcy estate. But the court could dismiss the debtor’s case and deny the debtor a discharge under the bankruptcy laws. In contrast, the SPAT should be irrelevant to a bankruptcy proceeding. The settlor has no beneficial interest in the SPAT and it is not self-settled.

Further, in bankruptcy, a fraudulent transfer claim will succeed if a mere preponderance of evidence shows an intent to hinder, delay or defraud creditors. In contrast, the law under DAPT states requires a greater amount of proof.

Are the trust assets open to scrutiny by others?

Plaintiff’s lawyers, creditors, and government agencies can ask if a person is a beneficiary of a trust. They will do that to see if they can attach the trust assets or consider the assets for various purposes. This may affect a person’s eligibility for certain programs or benefits. It can also cause psychological stress to the settlor. On the other hand, a special power of appointment trust is immune to this kind of scrutiny. The settlor of a SPAT is not a beneficiary.

Are there limitations on where the trustee can live?

A DAPT requires the appointment of a trustee or co-trustee in the designated DAPT state. A SPAT does not have this rule.

Are there exceptions to the types of claims the trust can against?

Some states with DAPT statutes include exceptions to what the trust protects against. For example, some states allow creditors to seize the assets of a DAPT for child support. Another example is spousal maintenance. Transfers made within certain time periods are sometimes not protected. And government creditors, bankruptcy, and certain torts are also sometimes not protected.

But SPATs do not have any such statutory exceptions. A creditor of a permissible appointee can’t reach the assets of a SPAT.

VERDICT:

A Special Power of Appointment Trust complies with the First Pillar of Asset Protection, insofar as creditors are concerned. See below for a discussion regarding protection against con artists.

Our firm’s Asset Vault Trust is a Special Power of Appointment Trust that allows maximum protection as well as maximum flexibility.

Why You Should Care About Protection in All 50 States

Let’s say you live and work in Nevada. You also have a Nevada DAPT. You would still not be protected in the following situations:

  • You sell to customers in other states. That may be sufficient connection to another state for that state’s court to obtain personal jurisdiction over you.
  • You travel to or through other states. For example, you could get in a car accident and then get sued in that state.
  • You get sued in Nevada, and your DAPT is less than 10 years old. In that case, your judgement creditor could force you into involuntary bankruptcy. Then everything in your DAPT would be available to pay your creditor. This is further explained in the next section.

Why You Should Care About Protection in Bankruptcy

Section 548 (e)(1) of the Bankruptcy Code states provides that self-settled trusts such as DAPTs and FAPTs must be in existence for 10 years before filing bankruptcy. Otherwise, the bankruptcy trustee can seize the trust’s assets for the benefit of your creditors.

(1) In addition to any transfer that the trustee may otherwise avoid, the trustee may avoid any transfer of an interest of the debtor in property that was made on or within 10 years before the date of the filing of the petition, if—

(A) such transfer was made to a self-settled trust or similar device;

(B) such transfer was by the debtor;

(C) the debtor is a beneficiary of such trust or similar device; and

(D) the debtor made such transfer with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted.

In other words, if you create a self-settled trust for purposes of asset protection, and the trust is less than 10 years old, then the bankruptcy trustee can unwind the trust and get to the assets.

Tenancy by the Entireties Fail to Comply With the First Pillar of Asset Protection

The term tenancy by the entirety refers to a form of shared property ownership that is reserved only for married couples. A tenancy by the entirety essentially permits spouses to jointly own property as a single legal entity. This means that each spouse has an equal and undivided interest in the property. This form of legal ownership creates a right of survivorship so if one spouse dies, the surviving spouse automatically receives the full title of the property.

Tenancy by the entirety can only occur when the property owners are married to one another at the time that they receive the title. This type of legal agreement does not apply to other partnerships such as friends, siblings, parent-child relationships, or business associates. Spouses who mutually own property through tenancy by the entirety are referred to as tenancy by the entirety. Each spouse legally has equal rights to ownership of the property in question. This allows them to inhabit and use the property as they see fit.

States that allow tenancy by the entirety include Alaska, Arkansas, Delaware, Florida, Hawaii, Illinois, Indiana, Kentucky, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, and Wyoming. Each state has its own laws that govern this form of property ownership and how it may be applied. About half of all states allow this form of ownership to exist for all types of property held by married couples. Some states only allow tenancy by the entirety to be exercised for real estate that is jointly owned by married couples.

Tenancy by the entirety can protect the property if only one of the spouses gets sued and gets a judgment. However, if the non-debtor spouse passes away, the property transfers automatically by operation of law to the debtor spouse. Then the judgment creditor has an unprotected property to pursue.

Also, if a judgment attaches to both spouses, tenancy by the entirety will offer no protection.

VERDICT: Because tenancy by the entirety offers no protection if both spouses die, or if the non-debtor spouse dies, it fails to comply with the First Pillar.

Other Forms of Protection That Fail to Comply with the First Pillar

There is no magic bullet for protecting your net worth. Insurance has policy limits and exclusions. Any particular trust can only do so much. To protect yourself requires an integrated approach. All of the different parts have to work together. This requires seeing all the issues and how they inter-relate.

Instead of struggling to find the “correct” trust, you should focus on finding the right attorney who you can trust to put together an integrated estate plan, business plan and asset protection plan for you.

Some techniques or legal structures that will probably qualify under the First Pillar include:

  • Qualified Personal Residence Trusts
  • Panama Foundation
  • Captive Insurance
  • Equity stripping, such as a secured line of credit
  • Life insurance trusts

Techniques that do not qualify under the First Pillar include:

  • Umbrella insurance
  • Liability insurance

However, insurance should probably always be part of an asset protection system. It acts as a first line of defense against sources of liability.

Techniques that may qualify under the First Pillar of Asset Protection

Techniques that may qualify under the First Pillar of Asset Protection include:

  • Qualified Retirement Plans and Individual Retirement Accounts (IRAs)
  • Use of state homestead exemptions
  • Placing “risky” assets (such as rental houses) in separate limited liability companies. (The degree to which these assets are protected from your personal legal liabilities depends on how the limited liability companies are owned.)

These are generalizations and not specific legal advice. If your goal is creditor protection, seek competent legal advice before implementing any of the above techniques.

VERDICT: Depending on how the above-listed techniques (and others) are used, they may or may not comply with the First Pillar.

The following techniques qualify under the First Pillar: Qualified Personal Residence Trusts

Protection Against Con Artists

Most asset protection attorneys only focus on protecting against some or all of the following: lawsuits, creditors, bankruptcy, divorce, IRS audits, and government actions.

Protection against fraudsters, con artists and poor decisions requires a different level of vigilance. This falls under what Family Offices call risk management. This requires protections such as checks and balances, audits, reviews by independent persons. Normally, the cost of such protections makes them unavailable to families with less than $30 million. However, there are companies that provide such services on a trimmed down basis. Such services may not manage your luxury lifestyle for you (such as higher end Family Offices would). However, they provide the most necessary components to protect against the most common sorts of threats to your wealth.

[1] See, e.g., FTC v. Affordable Media LLC, 179 F.3d 1228 (9th Cir. 1999) (a/k/a “Anderson”); In re Lawrence, 279 F.3d 1294 (11th Cir., 2002).

[2] https://www.wealthmanagement.com/estate-planning/best-situs-dapts-2019.

[3] Id.

[4] https://www.wealthmanagement.com/about-us.

[5] A list of over 30 court decisions detailing how U.S. courts can defeat offshore trusts can be found at https://magellanlawfirm.com/court-decisions-defeating-offshore-trusts/.

ABOUT THE AUTHOR

Founding attorney Paul Deloughery has been an attorney since 1998, became a Certified Family Wealth Advisor. He is also the founder of Sudden Wealth Protection Law.

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