The Seven Levels of Asset Protection

The Seven Levels of Asset Protection


Today I participated in a teleconference on Asset Protection Planning.  Although the program was a bit basic for me, speaker Carl Waldman. Esq. included a helpful chart of the Levels of Asset Protection, which I have expanded on here:

  1. Exemptions - certain assets are automatically protected by state or federal exemptions.  Each state has different laws, and federal bankruptcy law may control if one files bankruptcy.
  2. Transmutation Agreements (in Community Property states; NC is NOT one) - to convert a husband and wife's community property into separately owned property for more protection.
  3. Professional Entity Formation - Professional Corporations/Associations, Professional Limited Liability Companies.  This is for physicians, attorneys, CPAs, etc, but other businesses should also form protective entities.
  4. Leasing Limited Liability Companies - to own specialized or valuable equipment and/or real estate, and accounts receivable strategies.  This is generally for physicians or dentists.
  5. Family Limited Liability Companies - to own non-professional practice assets, such as real estate, investments and businesses.  Anyone who owns rental real estate should consider an LLC.  Jurisdictions such as WY or NV that offer single-member charging order protection are recommend for LLCs with sole owners.
  6. Domestic Asset Protection Trusts - allow you to protect assets in trust while still receiving the benefit of the funds.  Must be based in states such as Nevada that have statutory provisions for such trusts.
  7. Offshore Asset Protection Trusts - similar to the DAPTs, but beyond the reach of U.S. courts.  These are the most complex and expensive of the planning techniques, and are by no means fail-safe.  Jurisdictions such as Nevis, the Cook Islands, and St. Vincent are often used.

There is no one-size-fits-all solution in asset protection planning, and it is not a way to "hide" assets or avoid taxes.  To make sure that your assets are properly protected, consult with an asset protection attorney who is licensed in your state.   If need be, he or she can work with professionals in other involved jurisdictions to ensure that your plan is completed property. Beware of non-attorney or non-specialists who claim to provide asset protection services.  Buying a family limited partnership package at a seminar will just waste your money and provide a false sense of security.

Gregory Herman-Giddens, JD, LLM, TEP, CFP, Attorney at Law (NC, FL, TN), Board Certified Specialist in Estate Planning and Probate Law (NC). North Carolina Registered Guardian, Solicitor, England and Wales. Follow his blog, North Carolina Estate Planning Blog..

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