Asset Protection - An Introduction Introduction   Asset Protection is a concept that has spawned a new sub-specialty within the estate planning community. Asset Protection involves the creation of one or more legal entities to prevent, limit or hinder a creditor's attempt to seize and sell a debtor's assets in satisfaction of a debt owed   to the creditor. Usually, the creditor is seeking payment arising from an award of damages obtained in a lawsuit, but a properly constructed asset protection plan will protect against most creditor's claims, regardless of origin.

How Asset Protection Works   Asset Protection  works by changing the character of the assets held by the debtor from one that can be easily seized and sold, to an asset that the creditor cannot legally seize and sell. By transferring assets into certain types of trusts or limited liability entities (corporations, limited partnerships and limited liability companies) in which the debtor owns a portion of the interest in the entity but not the asset directly, such as a beneficiary of a trust, stock, partnership interest or membership interest in an LLC, the creditor is restricted only to the debtor's interest in the entity. There are two general types of asset protection:

(1) Using off-shore jurisdictions to place assets outside the reach of creditors and the U.S. court system; and

(2) Using entities formed within one of the states within the U.S. with favorable debtor protection laws. Usually, these jurisdictions protect the limited liability nature of the entity as a barrier against a direct judgment against the debtor and thus, indirectly, protect the debtor against creditors who attempt to "disregard" the entity in hopes of seizing the assets held within the entity.

Additional Information   For additional information on domestic asset protection and asset protection techniques in general, see the Tax Prophet's Tax Class on  Asset Protection.

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