"Asset protection" has a negative connotation in the U.S. court system. To many judges, anyone who makes their assets unavailable to meet the claims of a creditor is simply a deadbeat.
And to force "deadbeats" to pay their bills, judges have a variety of tools available, up to and including jailing a debtor. This last "remedy" isn't common, but there are several cases where it has been employed, most notably, in situations where a debtor or the debtor's legal advisors have made serious planning errors.
In the most famous case, involving a Mr. and Mrs. Anderson, the Federal Trade Commission (FTC) attacked the couple's telemarketing venture as a Ponzi scheme. The FTC sued the Andersons in federal court and obtained a US$20 million judgment.
When the Andersons claimed that they could not pay the
judgment, the FTC obtained a court order requiring the couple to repatriate
US$8 million in assets from a Cook Islands offshore trust. The Andersons failed to obey this order and
the judge jailed the couple for civil contempt. A federal appeals court affirmed this decision.
In many ways, the Anderson case was a worst-case scenario due to serious errors in the Anderson's trust. Their most important error was that the Andersons were named as both co-trustees and co-protectors of the trust, a position they gave up only when their trial began.
Fortunately, in the vast majority of situations, it's not necessary to go to jail to protect your assets. All you have to do is to make sure that the purpose of your plan is not to "hinder, delay or defraud" creditors, thus making the transfer of assets a voidable "fraudulent conveyance" in the eyes of the law. This determination is best made after consultation with an experienced asset protection attorney.
So, what should the purpose be? As an example, let's say that you're interested in moving some of your assets to an offshore bank account to take advantage of investment opportunities not available in the United States and protect yourself from the depreciating U.S. dollar.
These certainly aren't "asset protection purposes." But, it turns out that many offshore banks will no longer do business with a U.S. resident person unless that person forms an offshore entity with which to open the account.
In considering what kind of offshore entity to form in this situation, why not opt for one that also provides asset protection for the funds placed offshore? This entity could be an offshore limited liability company, an offshore trust, or any number of other structures. But in every case, the entity is created for purposes not related to asset protection and the assets are transferred for purposes not related to asset protection.
Again, before you create or transfer assets to an offshore structure, it's best to receive professional advice to insure that these actions won't constitute a voidable fraudulent conveyance. But, if there are legitimate purposes not related to asset protection, you've gone a long way toward insuring that your planning will hold up in court.
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