12 Commonly-Held Myths about Asset Protection

1. Asset Protection is ONLY for those with very high net worth.

   FALSE: Someone with a net worth of $20 million won't be nearly as affected by a $1 million lawsuit judgment compared to a client with $1 million net worth. The client with $20 million can easily pay the judgment and continue living the life that they are accustomed to leading. In comparison, a client with $1 million net worth who gets a $1 million judgment is bankrupt, and the life that he or she has known is effectively over.

2. Asset protection is illegal or unethical.

   FALSE: If properly constructed by an experienced attorney, asset protection is an incredibly powerful legal tool that can effectively protect clients from future judgments. To the extent that you do not seek to defraud your presently known creditors, there is nothing illegal or unethical in placing some of your assets beyond the reach of creditors.

3. Asset protection can reduce my income taxes.

   FALSE: Asset protection should not generally be considered as an income–tax-saving plan, although there are perfectly legal ways to achieve deferment of income tax payment. The sole use of asset protection trusts as a means to avoid income tax may constitute a “red flag” to the IRS, inviting additional scrutiny and possible audit.

4. The IRS will audit me if I establish an asset protection trust.

   FALSE: Creating an asset protection plan with an experienced attorney will not make you any more likely to receive an IRS audit. You may be required to file additional forms with your asset protection plan to inform the IRS that you have put a legal asset protection plan in place.

5. I will lose total control of my assets with asset protection.

   FALSE: With the implementation of a properly crafted asset protection plan, you do not lose the control of your hard-earned assets. A carefully designed plan will always allow the client to enjoy the full use of their assets.

6. A domestic asset protection plan is as strong as offshore planning.

   FALSE: Many planners claim its Family Limited Partnership (FLP) or domestic asset protection trusts, based in the United States in states such as Delaware, Alaska, South Dakota or Nevada, provide comprehensive asset protection. While these domestic plans are effective to a certain degree, they simply are not as strong as an offshore trust governed by a legal jurisdiction outside the United States.

7. I am fully protected with a Family Limited Partnership or FLLC.

   FALSE: Many asset protection "experts" claim that a Family Limited Partnership (FLP) or Family Limited Liability Company (FLLC) is all that is needed to properly shelter your assets; however, such domestic planning does not protect your assets to the extent possible with offshore planning. Many companies tout FLPs, FLLCs or "Nevada Corporations" as successful asset protection schemes simply because they lack the requisite knowledge required for true offshore planning. Unlike most other outfits, The Sequoia Group has been providing comprehensive asset protection planning for over 15 years.

8. I must maintain active foreign bank accounts at all times.

   FALSE: A foreign bank account is not even required unless you actually need to move certain assets offshore. In most cases, the strong deterrent factor of having the appropriate offshore asset protection planning in place is enough to dissuade anyone advancing a frivolous or meritless lawsuit.

9. If I am sued or my spouse files for divorce, I must flee the country.

   FALSE: Where asset protection planning is linked to one or more offshore accounts, only the legal ownership of the money leaves the country; the individual does not need to leave the United States. In the event that an individual with an asset protection trust is sued or their spouse files for divorce, that individual is said to be operating under a “state of duress” for legal purposes. In such cases, the offshore trustee is in control of the trust assets, and the beneficiary may access the trust assets through a “trust protector”—usually a legal or accounting professional selected by the beneficiary—who deals with the trustee on the beneficiary’s behalf.

10. Asset protection can be established after I am sued.

    FALSE: The only asset protection planning legally recognized by the courts is planning set up prior to any threat or service of a lawsuit. If you already have been served with a lawsuit, or have reason to believe that a lawsuit is imminent, in all likelihood it is too late for asset protection planning, and a U. S. court likely would view the transfer as a fraudulent transfer or conveyance.

11. I can just transfer all my assets to my spouse and/or children.

    FALSE: The transfer of your assets to your spouse and/or children will simply not protect you from frivolous lawsuits. The transfer of your assets to your spouse and/or children can also be viewed as a fraudulent conveyance used to defraud your creditors. In addition, the transferred assets are then totally at risk in the event that the transferee is sued for unrelated reasons.

12. I am not a lawsuit target.

    FALSE: With more than one lawyer for every 292 U.S. residents, the number of lawsuits filed everyday continues to rise. No one is safe from frivolous or even borderline-legitimate litigation, particularly if his or her net worth is over $250,000.