If you want to protect your assets from the government, you can either set up a corporation or LLC, or you can create a legal trust to hold your assets. In either scenario, you’re creating some legal separation between you and your assets, which makes it difficult for the government to seize them.
In our modern financial system, you must’ve thought about protecting your assets from a possible government seizure. For protection from judgments, tax liabilities, and other government actions, the best defence is a good offence.
Let’s dive into some popular and time-tested specific asset protection strategies and some of the legal tools available to you.
The Basics of Asset Protection
As a rule, anything you personally own is considered as part of your estate. And if the government wants to seize your estate, that includes anything and everything titled in your name.
So, the basic idea of asset protection is to create legal separation, either behind a corporate veil, a trust structure, or by sheltering them in an offshore location.
Defining Asset Protection
More simply put, asset protection is the use of legal structures by which ownership of an individual's wealth can be separated from the claims of creditors or governments. It can be done in many ways to make your assets inaccessible.
A successful asset protection plan depends on an understanding of both your financial circumstances and the laws governing asset ownership. Asset protection can be crucial to not only your personal finances but also your business, serving as a contingency plan against unexpected circumstances.
For example, people may create trusts, or use limited liability companies (LLCs) to separate out their personal assets from business liabilities in order to prevent being wiped out by surprise claims.
Why Now? The Importance of Asset Protection
Protecting your assets is absolutely vital. Most people get into asset protection because they want to pass their wealth on to the next generation. Or they may work in a career that’s at high risk for litigation. There are many answers to that “why” question. But why now?
If you have your assets protected, you can keep your head above water even in worst-case scenarios. Today, this type of foresight is indispensable to protect one's assets provided the current economic conditions are as unstable as ever. It’s more than just some business fluctuations or legal disputes. We’re talking about economic declines and life-ruining tax bills. You could have everything you’ve built taken away in a government seizure, only to languish for years while the courts sort it out. I’m being a little dramatic, but I’m trying to emphasize how a little preparation now can make a world of difference.
Some asset protection strategies can also reduce your risks from lawsuits, divorce actions and bankruptcy. By learning a few basics about asset protection, people can gain the knowledge necessary to make more informed decisions when it comes to investing and estate planning.
The Government And Your Assets
In this country, ownership can be fragile. If the government views your assets as a means to recoup funds or for fraudulent investigations, it can seize everything you own. That’s cars, property, accounts, investments, businesses, an entire family legacy.
How the State Can Grab Your Assets
The U.S. government has a number of reasons to seize properties. Commonly, it’s because there are unscrupulous people or businesses that are trying to skirt the law. Maybe it’s tax evasion, money laundering, or any other form of illegal conduct. This enables the government to then file liens on assets or move forward with court-ordered seizures and foreclosures.
If you owe money, the government may freeze bank accounts and take your home or personal property in order to be paid. Having a better view of how far governments can go when taking your property is necessary in order to construct an effective asset protection plan.
The best example is the Internal Revenue Service (IRS) and its ability to put liens on bank accounts and garnish wages of those who do not pay taxes they owe. This can create a severe financial strain for individuals who are behind in their tax payments. In truth, the IRS can be ruthless when you owe them money.
It’s not just the federal government. Local governments can also seize personal property. Asset-forfeiture laws allow police to take whatever they believe is the proceeds of a crime even if the person has not been convicted. The practice, known as “civil asset forfeiture,” has come under fire for leaving open the potential for abuse and failing to provide enough legal protections for owners.
Asset Seizure Legal Issues
The system of asset seizure is complex. Traditionally, asset forfeiture is confined by certain aspects of the due process clause. Seizures are generally subject to approval by courts, allowing property owners to challenge the government's claims.
It is critical, however, to know the time deadlines and rules which failing to respond promptly may result in a loss of assets. If you understand your rights, you can guard your wealth against government intentions. For instance, property owners frequently have only a short period in which to appeal the seizure in court. If you fail to meet that deadline, you could be permanently separated from your assets.
Besides learning about the laws about asset seizures, you also need to know how to defend yourself if your assets are seized for any reason. For example, proving that the property was obtained legally or that it is necessary for one's livelihood can create a basis for challenging a seizure.
Asset Protection Techniques
It’s not that we’re trying to scare you. We’re simply talking about the realities of government seizure of your assets. So, if you want to protect your assets from the government that could take it whenever it wants, you have some options up your sleeve.
Setting Up an Asset Strategy
A robust asset protection plan starts with an honest appraisal of what you own and what you owe. Then you can decide which strategy will be most applicable to your situation. For instance, for individuals with high net worth (over $10 million in assets), an irrevocable trust is a likely choice for an asset protection strategy.
You might actually need more than one strategy to fit the specifics of your situation. This might involve forming legal entities such as LLCs and moving assets into protective structures. This will dramatically increase the level of safety you have.
As your financial situation changes and you face different risks, it’s important to revisit and revise the plan. Furthermore, changing circumstances in your life (getting married/divorced, having a baby…etc) might also change how you protect your assets from the government.
How Asset Protection Trusts Work
Trusts are a powerful weapon for asset protection. Placing assets into a trust separates ownership from direct control, which makes them less susceptible to creditor claims or government seizure. Trust options include irrevocable and revocable trusts, each of which serves a different purpose.
Irrevocable trusts in particular offer robust protections since assets transferred into such a trust are removed from the grantor's estate. This means that these assets are shielded from creditors and governments since they’re no longer considered part of your estate.
Trusts can also be part of an estate plan intended to deliver assets into the hands of beneficiaries over time. When it comes to securing their wealth across generations, this long-term planning element can be especially useful for families.
Insurance & Protection of Assets
Insurance should be integral in an asset protection plan. Different types of insurance policies will offer a financial “umbrella” in case of the unexpected. For any assets not in trusts or sheltered companies, insurance policies can close that gap. For example, If you are found liable for damages, general liability insurance can help protect you from having to pay out of your own pocket.
In addition, some specialty insurance products like professional liability insurance are an essential component of a multi-faceted asset protection plan. Make sure you regularly review and update your insurance coverage so you always have enough to protect your assets.
Legal Instruments For Asset Protection
Now that we’re getting into the nitty-gritty of the asset protection plan, we’re only going to cover the most popular legal options for asset protection. If you want more information, fill out the form below so you can get started right away on your asset protection trust.
Understanding Trusts
Trusts are absolutely essential for asset protection. But you have to choose the right type of trust if protection is your main goal. Some people set up revocable trusts because they keep control over the assets in the trust. But because revocable trusts can be modified or revoked at any time, the assets within the trust are still considered as part of your personal estate. It’s not adequate protection from the government.
A better option is the irrevocable trust. When you set up and fund this trust, you’re permanently separating yourself from your assets, and it can’t be undone. The trust then becomes its own separate entity, taxed separately from you, and treated as a separate from you. If the government (or any other creditor) comes knocking, the irrevocable trust is your best asset protection plan.
Powers of LLCs and Corporations
Another option is to create an LLC or corporation. Incorporating makes a legal separation between your personal wealth and any liabilities the business may have from its activities. It should be mentioned that in the case of a lawsuit against your business, personal assets are typically protected from claims like this.
Additionally, LLCs offer pass-through taxation. This means that all income is taxed only on the owners' personal tax returns and not at both the business and personal levels. Why get taxed twice when you don’t have to?
Offshore Asset Protection
We’ve talked about a few options, but you also have more choices offshore. There are several countries that make it easy to protect your assets from the government. If you create an offshore protection plan, it’s harder for anyone to access what you own.
Offshore Trusts and Accounts
Asset protection offshore is the process of transporting your assets to foreign lands that allows for better estate planning and protection from creditors. Offshore trusts and accounts can also provide a high level of anonymity. Many countries like the Cayman Islands have strong privacy laws in place that make it hard for governments to penetrate foreign courts.
More often than not, these offshore jurisdictions offer solid arguments for the protection of privacy and confidentiality. They have legal systems designed for the rights of individuals to keep their wealth off-limits from domestic claims.
On the downside, offshore trust setup usually carries expensive overhead and compliance costs. You also have to consider tax implications and cross-border relations. These can be complicated so you would need to hire a legal team in your chosen jurisdiction to help manage and coordinate your asset protection plan.
These trusts can protect wealth from lawsuits and unreasonable government action. Offshore accounts are also useful for making and receiving international investments and transactions, which helps investors diversify their portfolios beyond the borders of domestic markets.
The Pros and Cons of Offshore Asset Protection
On the positive side, offshore structures typically also include greater privacy for individuals. For many people, that’s a solid reason to take their assets offshore, so no one can pry into their personal affairs.
You also get lower or no taxation on your income and assets. You may also be shielded from lawsuits, like in the Cook Islands, which choose not to recognize foreign government orders.
The biggest step here would be to do thorough research and well as consulting with legal advisers to know what options are available.
As a negative, managing offshore accounts can prove to be difficult and expensive. There are also many countries that attract attention if you choose to set up an offshore structure there. Even if you’re doing everything legally, you can look guilty for trying to protect your assets from the government. Remember the Panama Papers? A lot of the people named there were simply guilty by association, not by action.
The cost of setting up any sort of offshore structure can be high. It’s often a choice for high net worth individuals who have more than $10 million of assets to protect.
On top of all that you have to monitor the dynamic changes in global tax laws and tax compliance. It can be time-consuming to keep up with the day-to-day schedule of running an offshore structure.
Is It Worth Protecting My Assets From The Government?
Taking any sort of proactive step is always a smart choice. There’s no easy answer to what you should or shouldn’t do. You can always evaluate your options and decide what’s best for you.
If you need guidance, fill out the form below. We can talk through your situation and your goals, and we can come up with a protection plan that works for you. Let’s get started today!
