Generally speaking most states protect the necessities of life, or at least some amount thereof, from seizure by creditors, which may include items such as the homestead, salary/wages, retirement benefits/accounts, health insurance account, personal property (vehicle, furniture, etc.), and other items depending on your particular state. No state protects any of a person’s property from a divorce decree division and anything one owns may be divided, sold off, or given to the other spouse depending on the circumstances. Similarly with regard to child support: this debt will not go away and one may go to jail for not paying it when ordered; hence it should be paid even if only from a sense of decency. Therefore the items most people need to protect for themselves and future generations are generally business related property or investments from creditors and from division upon divorce. Notwithstanding the threats from outside, considering current interest rates, generally most liquid assets such as cash accounts should be kept to an absolute minimum. If such liquid assets need to be converted into concealable assets, cash may gradually be converted into prepaid credit cards. There are offshore prepaid cards which will permit a balance as large as one requires, for a reasonable fee.
At its most basic level asset protection relies on deterrence. If you don’t own it, it can’t be included among your assets, cannot be found, and can’t be obtained through any legal proceeding. A lack of assets will deter nearly any litigant or creditor from pursuing you since most cases are filed on ‘contingency’ and lawyers generally will only pursue defendants with reachable assets. When no one knows that you own some asset, such a tactic serves a similar purpose as to not owning something. How do we not own something? We generally have an entity that cannot be traced to you own it.
Generally speaking, forming an entity in one of the best states and putting an asset in the name of that new company, an LLC or LP (it should be noted an LP in most cases must be formed with at least an entity as ‘general partner’ so as to protect anonymity and limited liability, and preferably another entity as ‘limited partner’), will take care of the issue. Now what one needs to do is not tell anyone that they own the company; yes secrecy is actually a major part of asset protection. If creditors or other potentially threatening parties already know that you own a given asset then next simplest step is to encumber it with debt or a lien and make that lien public. The lien should be legitimate, from a bank or other financial entity or a business, and the lien should be filed with the proper authority such as the county recorder or Secretary of State where the asset is located. Even if the lien is placed on an entire LLC and all its assets, while not the best option, this is a legitimate method of deterrence if there are internal private agreements in place.
In many states, entities are required to list owners or managers of a new company upon formation. This is relatively easy to get around by using a trust. We have used a certain method of naming a trust without a trustee as initial member-manager, which has worked very smoothly up to this point. This method makes the new company essentially anonymous, although a trust must actually exist, with a trust agreement, along with a trust certification/abstract, and the entity is generally named the beneficiary. The company operating agreement and initial minutes of course need to name the trust as the member and the trustee will sign on behalf of the member as “Trustee of abc Trust, dated xxxx”. If the new entity needs to obtain financing or be approved for licensing or will otherwise conduct business activity this may not be a prudent option as the structure may present difficulties with 3rd parties. The trust as member option is generally best used with holding companies which will not conduct any operations but merely sit silently in the background. Holding assets such as vehicles, equipment, and real estate works well with these entities. If an operating company is to be formed which is not anonymous that’s not a problem so long as it is minimally capitalized at all times and its assets may be relocated quickly if possible, though it should not hold any significant assets in the first place.
A more costly and cumbersome option is a double LLC strategy: creating an LLC in one of the best states, then having that LLC own another LLC in one’s home state or the state where one will conduct business (you may need to register in your home state as well). This usually provides far superior liability protection over a single entity and the first ‘manager’ LLC can also be owned by a trust, if necessary. An even better option is to have a US LLC owned by an offshore LLC. The management company or offshore LLC operating agreement may have all kinds of asset protection features such as limiting creditors to the sole remedy of a charging order (already present in many states and offshore jurisdictions), to involuntarily buying out the creditor’s charging order interests for a discounted price, to appointing an offshore manager who will transfer ownership of the asset to another (offshore) entity, tax liability, and other poison pills.
The lesson is simple: create anonymous entities and place assets into them: homes, accounts, property, retirement accounts, insurance policies, etc., then keep it all a secret. It should be noted re-titling accounts of any kind is certainly not a fun endeavor. Liquid assets may be converted to hard assets and either hidden physically or titled in the name of an anonymous entity. If further protection is required encumber the property with a public lien: a home equity line of credit (HELOC) placed against real property is perfect since no interest is owed unless the funds are withdrawn, and they are never withdrawn until necessary to deter your pursuers. Collateralize your property and it will be safe from just about anyone. Once it’s paid off sell it and buy new collateralized property or borrow as much as possible against its value (or you need to re-title it because it is an attractive target). If a threat is on the horizon such as divorce or a creditor, transfer the asset to a harder to reach location such as another entity or offshore. Such a removal will dissuade most parties from suing in the first place, so have no fear of the fraudulent conveyance laws too much, these are very difficult and costly to prove. If you sell an asset be sure to get fair market value for it or a promissory note. A huge advantage of anonymous LLCs owned by trusts is that immediately upon the occurrence of a threat the successor or co-trustee may be emplaced secretly and this person will own and control the entity and be able to take urgent action to protect it as necessary, if necessary, since the original owner no longer owns or controls it. Once the threat passes, control/ownership may once again be restored.
Most asset protection attorneys will attempt to sell clients various complicated structures which clients really don’t understand; they will use names such as Family Limited Partnership, which is just a limited partnership, or Privacy Trust, Asset Protection Trust, Family Savings Trust, etc., but these are basically just trusts with similar trust documents and very similar provisions. Further, most attorneys will want to be appointed trustees of the various trusts as they will tell you that this is the only way to remain an owner of property ‘off the record’, and they will manage the trust or company for you for a small fee. This is all bread and butter for the legal profession and most people have no need for this type of arrangement except in limited circumstances. No asset protection strategy is 100% effective, but we can certainly get quite close. It just depends how much a pursuer wishes to spend chasing you.
