Asset protection is a legal strategy that helps people avoid losing money due to lawsuits, judgments, or other financial claims. It can involve hiding assets from those who might take them away. This is done using various legal legal structures and mechanisms.
Understand the Basics of Asset Protection Strategies.
There are several ways to protect assets from being taken by creditors. One common method is to put assets into a certain kind of trust. A trust is a legal arrangement where one party (the trustee) holds assets for another party (the beneficiary). This allows the trustee to manage the assets without having to disclose them to anyone else.
However, not all trusts work. If you are both the trustee and beneficiary of the trust, your creditors can get to your interest in the trust. Also, asset protection trusts don’t work in most situations. We’ll talk about asset protection trusts further in this article.
Choose the Right Type of Asset Protection Strategy.
If you choose to use a trust as part of your asset protection strategy, make sure you select the right type.
Asset Protection Trusts Have Limited Use.
So-called “Asset Protection Trusts” are actually self-settled spendthrift trusts. The case law is clear that these only work in a limited circumstance. First, you must reside in one of the states that permits them. (Arizona is not one of those states.) Also, you must not be in bankruptcy. Or you must have created the trust more than ten years prior to finding yourself in bankruptcy.
Our Asset Vault Trust is Better.
A very traditional trust for asset protection is an irrevocable Special Power of Appointment Trust. Our proprietary version of this is the Asset Vault Trust. It has a history going back 200 years. It has withstood attacks in every state and every context. It has held up in bankruptcy court, divorces, IRS audits, and government actions. It is absolutely protected from your creditors. Plus it is flexible and can be easily unwound if you ever choose to do so.
Find Out About Other Ways to Hide Assets.
There are other ways to hide assets besides trusts. You might consider placing your assets into a limited liability company (LLC) or corporation. These entities allow you to shield your personal assets from creditors by limiting your personal liability. However, there are some downsides to using these structures. For example, you may need to pay corporate tax on any income earned by the entity.
The Danger of Hiding Assets From a Known Creditor.
If you are hiding assets from a known creditor, you should consult with a lawyer before proceeding. A creditor who has been denied access to your assets can file a lawsuit to force you to turn them over. This process can take months or even years. It could be criminal, depending on your state’s laws. And you could be responsible for your creditor’s legal fees. At the end of all that, it is possible that the court will order you to pay back the money owed.
Want To Talk About Hiding Assets?