Bulletproof Trust: Fool-Proof Protections Strategies
- Last updated on . Written by Offshore Protection.
We are here to discuss fool-proof asset protection strategies to bulletproof your personal wealth.
The US is by far the most litigious country on earth, and it is only on the rise. If you are a wealthy business owner or professional, the unfortunate fact is that you have more chance of getting sued at some point than not, regardless of how careful you are.
This makes it all the more important to set up sound strategies to protect your hard-earned assets from the outset, long before you are faced with an actual threat. In this article, we will take you through the best ways to protect your assets from just about any danger.
Table of Contents:
- What Is Bulletproof Asset Protection, And Does It Exist?
- Insurance Is The First Line Of Defence
- Moving Your Assets Offshore
- Starting With An Offshore Account
- Offshore LLC
- Offshore Asset Protection Trust
- An Integrated Approach To Bulletproof Your Assets
- The Importance Of Planning Ahead
What is Bulletproof Asset Protection, and Does it Exist?
“Bulletproof” asset protection simply means using the right tried and tested techniques to protect your assets from all kinds of threats, such as creditor claims, bankruptcy, liability suits, divorce, you name it.
We could argue that no asset protection strategy is truly 100% ‘bulletproof’, just as a bulletproof vest is not really 100% bulletproof either. Everything has its weaknesses, and if strong enough shots are fired, there is always the risk that they could penetrate. However, there are some lines of defence which are just about unbreakable to most ordinary threats, and so we call them “bulletproof”.
Setting up multiple such lines of defence for your assets will protect them in almost any situation.
Insurance Is the First Line of Defence
Insurance is the first line of defence in any holistic asset protection strategy. Insurance has the benefit of being extremely simple and effective to set up. There are several types of insurance you can use to protect your personal assets such as automobile insurance, real estate, general, and most importantly, liability insurance. Liability insurance is key for anyone who is worried about the risk of getting sued for something related to their profession or business, as it can offer decent protection against most types of cases. When taking out insurance policies, it is important to make sure that the limits match your net worth (i.e., that you are not under covered). You should make use of an umbrella insurance policy to protect you if you feel you are at risk of claims in excess of your individual policy limits.
Insurance is a good starting point to protect your assets, but it certainly has its weaknesses. Insurance usually comes with many exclusions, and you might find that just when you thought you were well protected by your insurer, your policy is not able to protect you from a certain type of incident. Maintaining adequate insurance cover against all the possible risks is also costly. Insurance should be viewed as a good buffer against common dangers but should not be depended on alone to protect your assets.
Moving Your Assets Offshore
Moving your assets offshore is the next step towards creating a protection plan that is truly bulletproof. If the bulk of your net worth is kept in your own country of residence, your assets will always be at greater risk. Instead, placing them in a secure foreign jurisdiction through various offshore instruments provides a much needed geographical and legal barrier.
There are scores of different types of offshore financial tools at your disposal for asset protection, but we will just list a few of the best (and simplest).
Starting with an Offshore Account
The simplest place to begin your journey of protecting your wealth offshore is to open an offshore bank account in a safe and secure jurisdiction like Switzerland, Singapore, or Cayman Islands. These countries are known to offer the utmost in asset protection and privacy.
This alone will not offer enough personal protection in the event of a serious liability suit, but it will place your assets beyond easy reach. It will also lead to greater financial privacy and good protection against other systemic threats related to political instability, currency depreciation, and so forth.
Most importantly, taking the step of opening an offshore bank account is like dipping your toes in the ocean of offshore finance, and can open the door to many other options.
The classic vehicle of choice to protect your assets offshore is that of an offshore limited liability company (LLC). The most common way to use an offshore LLC to protect your assets is to open a holding company / shell company in a favourable jurisdiction like Cook Islands, Nevis, Belize, Panama, and many more. You would then transfer the assets that you want to protect into the LLC itself and maintain control as managing member of the LLC.
LLCs offer strong protection in a range of situations because they legally separate ownership of the assets, as they maintain the status of a distinct legal entity. They offer limited liability protection, meaning that members can only be held personally liable for the company’s obligation up to the amount of shares they have in the company, and conversely, claimants cannot easily go after assets held by an LLC in the event of a personal claim against one of its members.
This kind of protection is offered to a certain extent by a domestic LLC, but when it is in a protective offshore jurisdiction, the effect is greatly compounded. Claimants will need to bring a case before the local courts of the foreign jurisdiction to stake a claim on the assets held by the LLC. This is not only complex and costly, but also means they have a greatly reduced chance of being successful if you have carefully chosen a jurisdiction that favours asset protection and privacy.
Offshore Asset Protection Trust
By far the strongest type of offshore asset protection is that of an offshore asset protection trust. These are a special type of irrevocable trust where you can be both the grantor (i.e., the creator) of the trust, and the sole beneficiary at the same time, and thus retain all benefits and practical control of the assets. The fact that they are irrevocable means that courts cannot force you to make changes or to terminate the trust in an attempt to seize the assets. The trust is also a separate legal entity which means you no longer legally own the assets once transferred to the trust. This is similar to the structure of an LLC but with even stronger regulations and case law supporting it.
History has proved that the most successful offshore asset protection trust is the Cook Islands Trust. The regulations supporting the Cook Islands Trust makes it nearly impossible for a foreign creditor to successfully win a claim against the assets held in the trust. There is a short statute of limitations which reduces the risk of fraudulent conveyance cases, and courts in the Cook Islands do not recognise foreign judgements. This means that if a creditor wants to make a claim against the assets held inside the trust, they have to do so through the Cook Islands’ legal system itself. Not only is this costly and complex, but the odds of actually winning such a case in a jurisdiction which is notorious for its strong asset protection measures and has the case law to back it, is extremely slim.
The Cook Islands is not the only choice of jurisdictions for a bulletproof trust though. Other good options include Nevis and Belize. Both have strong regulatory protection, but not the same level of excellence in their track records as the Cook Islands.
An Integrated Approach to Protect Your Assets
We have mentioned some of the individual tools that you can use to protect your assets but using any of these tools on their own will not give you that bulletproof protection you need. To really ensure you have maximum protection, an integrated approach is needed. This involves using various layers of protection together to create a real fortress against any threat.
One of the best approaches is to use all three of the offshore vehicles discussed above. This involves firstly registering an offshore LLC in a favourable jurisdiction or tax haven. There are several offshore jurisdictions which lend themselves well to the establishment of an offshore LLC. Thereafter, you would open an offshore bank account in the LLCs name in a separate jurisdiction like Switzerland and transfer the assets you want to protect into the bank account. Finally, you would transfer ownership of the LLC to an asset protection trust which you have specially constructed with the help of an asset protection attorney, ideally in the Cook Islands.
This three-tier approach to offshore asset protection is as close as you can get to being truly “bulletproof” and will deter even the most zealous of opponents.
The Importance of Planning Ahead
The strategy we have outlined can provide near perfect protection to your estate, but there is one important point to be clear about it: any good asset protection strategy should be setup long before any actual threat is present. If you try to build this fortress when your assets are already at risk, you might find yourself in trouble. Assets could be frozen before they ever make to the offshore jurisdictions, or you could be landed with a very strong case of fraudulent conveyance that even a Cook Islands trust won’t be able to protect you from.
So, if you really want to make sure that your Cook Islands trust structure is bulletproof, set it up now before you are faced with the unthinkable. Finally, as this strategy is relatively complex and involves multiple parts, it is highly advised to enlist the help of an expert who can help you set it up properly. Make sure that your foundations are solid and correctly laid so that your walls can withstand any blow.