Asset Protection and Wealth Preservation

Protecting and preserving one’s wealth is not a one-size-fits-all situation. Each plan requires a unique approach that considers many essential elements.

The terms Asset Protection and Wealth Preservation are sometimes used interchangeably. Asset Protection may be the preferred term to describe work done by a licensed attorney, and Wealth Preservation as services by financial planners or others. That may be an interesting distinction. But the important thing is to make certain that the client’s assets are safe from creditors and predators.

Protecting and preserving one’s wealth is not a one-size-fits-all situation. Each plan requires a unique approach that considers many essential elements. These include the client’s preferences, the client’s exposure to threats to their wealth, and many others.

Domestic measures are sometimes the answer. At last count recently, twenty U.S. states now have domestic asset protection trust statutes, and more may have been more recently added. These are certainly worth consideration.

Properly structured offshore planning is also quite rational, and forms a critical part of most well-conceived asset protection plans for affluent clients.

Offshore asset protection is often the recommended way to protect liquid wealth. The question becomes whether using an offshore structure make sense in any given client’s particular situation?

A question that sometimes arises is why don’t more clients use offshore planning to protect their wealth from creditors?

The reason is most often lack of knowledge and understanding on the part of the professional advisor. Very few training curriculums, including law school, teach advisors about the basics of asset protection planning. This is especially true about offshore planning. Every advisor tends to recommend the strategies that they’ve learned. That is quite often not the best way to accomplish the job.

Offshore Asset Protection Trusts, Offshore Limited Liability Companies, and Offshore Captive Insurance Companies (which can sometimes serve as both an asset protection tool and a tax-minimization tool) are the commonly used structures to protect wealth. There are other approaches. However, the primary goal is typically to set up the entity in a foreign jurisdiction that does not honor the judgement of a United States court.

A question that is sometimes asked is whether the client’s money has to go offshore to be protected? And the answer is that, properly structured, it does not. Only in the event that a lawsuit is filed against the client, does the money become subject to removal from (?) to an offshore jurisdiction.

Bear in mind that offshore planning does not ordinarily help a client avoid the payment of taxes. United States taxpayers are taxed on their worldwide income, from whatever source it is derived. Of course, offshore trusts can own many of the same tax-favored vehicles that a client can own in the United States, such as life insurance and annuities.  In those cases, the benefits of asset protection and tax savings can both be available to the client.

There is nothing inherently complicated about offshore planning.  It simply involves choosing to plan within the laws of a select foreign jurisdiction, which offers better asset protection provisions than the United States. Because few people thoroughly understand the topic, it is shunned by some and feared by others, unless a qualified advisor can provide advice.