As professionals and clients become more educated through symposiums, articles and other publications, the general public is becoming more in tune to the debunking of the old days’ misperceptions that asset protection planning somehow implicates: (1) the engaging in a “fraudulent” transfer of assets to far away locations at a time that a creditor is about to descend; (2) the hiding of assets in secret locations and under fictitious owners’ names; and (3) income tax dodging and not reporting to the IRS the existence of taxable income or reportable assets.
Today, 17 states have passed asset protection trust legislation that specifically allows for protective trusts to be created, following the lead of many offshore jurisdictions. This spreading trend demonstrates that this type of planning is becoming well accepted, if not mainstream, which attracts a climbing number of would-be victims to engage in proactive asset protection planning. In essence, the key factual components to such planning today involves: (1) the repositioning of how assets are owned in advance of the threat of a lawsuit, which has proven to work well to protect assets, even with real estate; (2) the fact that clients have become comfortable with gifting a desired level of assets to a trust that is managed by an independent trustee who must act in the best interests of the client as a beneficiary (if that is part of the client’s chosen design of the trust), meaning the client can still financially benefit from the trust’s assets; and (3) the fact that the client can continue to manage (control) the assets (for example (i) as the manager of an LLC that owns the assets, although the trust owns the LLC, and (ii) as a powerholder over trust assets to redirect where the assets are distributed).
In essence, the designing of structures that import the laws of more protective offshore or onshore jurisdictions has allowed these more protective laws to shield assets from enforcement of actions that arise, for example, in less protective jurisdictions.
It should be emphasized however that retaining any of the controls mentioned above could weaken the asset protection. For example, if you serve as a general partner or manager of an entity (e.g., limited partnership, LLC) you should consider discussing with the trustee the wisdom of gifting those entities to other family-members and/or stepping down with regard to having such management control.