Asset Protection Douglass Lodmell , J . D ., LL . M . & Ian Hasegawa , J . D ., M . B . A .
ance , even “ umbrella ” policies , cover you for specified liabilities and have pages of small print enumerating what is not covered . Be mindful that the insurance company does not work for you the policy holder . Your insurer works for the shareholder .
Additional Tools for Asset Protection
Our heated US tort atmosphere created demand for advanced legal tools that went far beyond what insurance planning alone could do . Attorneys turned to the tried and true concept of a Trust for their solution . Trusts have the ability to be settled by the client ( Self-settled ) and even managed directly as well as the ability to add provisions called “ spendthrift clauses ” which limited a creditors access to the assets . What was created was called an Asset Protection Trust ( APT ).
The International Option
The Cook Islands , a Pacific island nation 2000 miles Northeast of New Zealand , passed the International Trusts Act in 1984 . This law created the first true Asset Protection Trust : a self-settled spendthrift trust which refused to recognize any foreign judgement or jurisdiction . Many countries followed suit , including Belize , Bahamas , Nevis , and Cayman Islands creating several Foreign Asset Protection Trust ( FAPT ) options .
For a creditor to infiltrate assets in a Cook Islands trust , they would have to re-try the case from scratch in the
Cooks , an unfriendly jurisdiction to creditors . Furthermore , a plaintiff has to hurdle the much higher burden of proof of “ beyond a reasonable doubt ” instead of the weak “ by a preponderance of the evidence ” prevalent here . There are no contingency fee attorneys there , requiring plaintiffs to foot the bill on legal fees and court costs which include flying a judge in from New Zealand . Stricter two-year statutes of limitations are in place that eliminate any aging claims . The loser of a case will likely pay the legal expenses of the winner , in addition to his own .
The drawbacks , however , of an offshore trust include higher setup and maintenance costs and a heavier paperwork burden of IRS filings and federal disclosures . A Settlor must be willing to relinquish control to a foreign trustee . There are also negative perceptions of impropriety that accompany offshore accounts and legal structures ( although this is entirely legal and ethical ). Regardless of these issues , there simply is no more secure entity for protecting assets than an offshore Cook Islands asset protection trust .
The Domestic Option
In 1998 , despite arguments that offshore trusts conflicted with US public policy , Alaska passed its own asset protection laws , followed by 15 additional states *. These jurisdictions decided that asset protection IS good public policy ; that it is legal and proper for individuals to take measures to protect their wealth from unknown future creditors and predators . Asset protection is a legal and worthy objective , provided one is not pursuing a “ fraudulent conveyance ” by trying to delay , hinder or defraud a known creditor .
Domestic asset protection trusts ( DAPT ) came with the benefits of lower maintenance costs , domestic trustees , reduced tax filings , fewer federal disclosure forms , and a reduced perception of impropriety . However … case law soon revealed the Achilles heel of DAPTs which originates in Article IV , Section 1 of the US Constitution which states :
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