Asset protection consists of methods to protect assets from liabilities arising elsewhere. It should not be confused with limiting liability, which concerns the ability to stop or constrain liability to the asset or activity from which it arises. Assets that are shielded from creditors by law are few; common examples include certain home equity, retirement plans and interests in LLCs, and limited partnerships, yet even these are not always out of reach.
Assets that are almost always out of reach are those to which one does not hold legal title. In many cases it is possible to vest legal title to personal assets in a trust, an agent, or a nominee while retaining all control of the assets. The goal of asset protection is similar to bankruptcy, and the two practices go hand-in-hand. When a debtor has few assets, the bankruptcy route is preferable. When the debtor has significant assets, asset protection may be the solution.
There are different strategies that one can use to protect assets and affairs in advance from various risks and unforeseen circumstances. Asset protection planning is more than just protecting one’s assets from creditors—it covers protection of every type of asset, including businesses and professional practices.
Offshore asset protection seeks to protect your wealth through identifying the securest and toughest jurisdiction venue to shield creditors from levying on your wealth. This form of protection is often a better vehicle to utilize vis-à-vis domestic asset protection structures. While a domestic asset protection vehicle may make your assets more vulnerable to seizure by U.S. courts, offshore jurisdictions do not recognize and will not enforce a U.S. judgment. A U.S. creditor would be hard-pressed to domesticate a judgment in an offshore jurisdiction to collect on a judgment.
Offshore companies are businesses that have been filed or incorporated outside of one’s country of residence. They offer much greater financial privacy than domestic entities, such as corporations, limited liability companies, or international business companies (IBCs) and they provide privacy, asset protection, tax savings (depending on your jurisdiction), lawsuit protection, flexible business laws, and confidentiality.
There are many offshore jurisdictions that have favorable laws which the U.S., Canada, and the United Kingdom do not extend. These jurisdictions compete for international clientele by favoring privacy of ownership, privacy granted to officers and directors, and nonrecognition of foreign judgments.
Taxpayers with foreign accounts can make their accounts tax-compliant. Their assets can be protected against creditors. Once the IRS assesses penalties for past failures to report income, foreign accounts and other informational reporting requirements, future taxes can be minimized. The past may not look so good, but the future can be greatly improved and the health-damaging stress that keeps a taxpayer up at night can be eliminated.