How to Use Asset Protection for Risk Management
Risk Management is the process of identifying, analyzing and mitigating the uncertainty in investment decision-making. One form of Risk Management is Asset Protection. Asset Protection is the legal and ethical process of titling one’s assets to get them beyond the reach of future potential creditors. Thus, Asset Protection protects your business investments from threats of litigation and other financial predators.
There are various strategies of Asset Protection that you can utilize to help mitigate your business and personal risks in regards to your assets. First, You can utilize statutory protections of certain asset types. These statutory exemptions protect assets such as insurance, annuities, various personal properties, and so on from creditor attachment. Also, each state has some form of the Homestead Exemption in place as well – which is a statutory protection of a person’s primary home. Some states have minimal protection and others, such as Florida, have great Homestead Exemption statutes.
Anything that isn’t covered by financial planning exemptions can be legally protected using domestic and international business entities. Domestic Asset Protection encompasses using business entities within the jurisdiction of the United States to protect assets. International Asset Protection entails using business entities and structures outside of the jurisdiction of the United States to protect assets. Domestic and International Asset Protection can be used simultaneously to provide for multiple layers of protection.
The following are just a few of the different protective strategies:
- Domestic Limited Liability Company: This Asset Protection tool allows a person to take their personally titled assets out of their own name and move it to a business entity. Limited Liability Companies “LLCS” are great for protecting assets such as real estate, cars, boats, planes, businesses, etc.
- International Limited Liability Company: Similar to the domestic LLC, the international LLC can be used to hold assets. However, the international LLC offers greater Asset Protection because domestic creditors do not have automatic jurisdiction over the International LLC, even with a United States judgment. Often times, creditors have to re-litigate their cases in the international jurisdiction to obtain any recourse. This deters frivolous lawsuits and enables a party to settle on their own terms.
- Domestic Limited Partnership: The limited partnership also can be used in conjunction with the domestic limited liability company to re-title personally titled assets to a protective entity. The limited partnership is great for protecting your liquid assets.
- Irrevocable Trust (Domestic or International): The Irrevocable Trust, with proper Asset Protection clauses, allows assets to stay out of the reach of potential creditors. Using an international jurisdiction for the trusts allows for an added layer of protection.
There are many more strategies that you can utilize aside or in conjunction with the above mentioned. Please visit my website or contact me directly if you would like any more information regarding Asset Protection or Estate Planning. Also, I am offering my complimentary books on Asset Protection to anyone who contacts our offices and mentions this article.