With the US most likely in a technical recession, it’s likely that we’ll be seeing an increase in frivolous litigation in the next 12 month period.
For example, during the recession that followed the 2008 financial crisis, there were reports of an increase in lawsuits related to debt collection, foreclosure, and bankruptcy, which some experts attributed to the economic hardship faced by individuals and businesses.
And according to a 2009 survey of attorneys conducted by the American Bar Association, nearly 60% of respondents reported seeing an increase in frivolous lawsuits since the beginning of the recession.
Which is to say, if you’ve got assets you wish to keep out of harm’s way, it’s high time to look at putting some robust asset protection measures – or structures – in place asap…
And regardless of which jurisdiction and/or structure you choose… of whether you go offshore or opt to use a domestic structure… deterrence of potential litigants – and their lawyers – is the name of the game…
Which countries offer the best legal framework for asset protection?
It is difficult to say which countries have the absolute strongest asset protection laws, as laws and regulations are constantly evolving and vary from country to country. However, there are some countries that are commonly considered to have strong asset protection laws.
Here are a few examples:
Switzerland: Switzerland has a long history of protecting assets, and is known for its strict banking secrecy laws – or at least, they used to be. Swiss banks are also known for their confidentiality and stability, making them a popular choice for high-net-worth individuals looking to protect their assets.
However, whether you’re looking for offshore banking or asset management solutions, the reality is that Switzerland is generally only geared to the needs of the exceptionally affluent.
Singapore: Singapore is known for its strong legal system and stable political environment. The country has a number of asset protection laws in place, including trust laws that offer significant protection to assets held in trusts.
The country has a well-developed legal system that is based on English common law, and its courts are known for their impartiality and efficiency.
But again, banking and asset protection in this country is generally the reserve of the more affluent (although it’s not nearly as exclusive a banking jurisdiction as Switzerland).
United States: The US has numerous asset protection laws in place, including limited liability company (LLC) statutes that provide protection for personal assets held by business owners. Some states, such as Nevada and Delaware, are known for having particularly strong asset protection laws.
Overall, however, the United States major’s drawbacks when it comes to asset protection are due to its legal system and the risk of lawsuits. They especially affect people residing in the country; those living elsewhere to a lesser extent.
Here are some factors to consider:
- Lawsuits: The US has a litigious culture – in fact, it is one of THE most litigious societies in the world today. This means that there is a risk of losing assets to a lawsuit or legal judgment against your structure – for example, if you were to run over your neighbor’s dog, reverse into his limited edition sports car, etc.
- Tax laws: The United States has complex tax laws, and it can be difficult to both minimize tax liability and achieve asset protection.It is possible to use offshore trusts and companies to protect assets, but this can be expensive and complicated. Additionally, there are reporting requirements for offshore assets, and failure to comply with these requirements can result in penalties…
Liechtenstein: Situated in Western Europe between Austria and Switzerland, Liechtenstein is a popular jurisdiction for asset protection due to its favorable tax laws, strong banking secrecy laws and modern and efficient trust laws. The country has a strong tradition of asset protection, and it is particularly popular among high-net-worth individuals.
Here are some factors that make Liechtenstein an attractive jurisdiction for asset protection:
- Banking secrecy: The country has strong banking secrecy laws that protect the privacy of account holders. This makes it difficult for creditors to seize assets held in Liechtenstein banks.But Liechtenstein, too, is a banking destination for the ultra wealthy – if anything even more so than Switzerland.
- Trusts: The jurisdiction boasts modern and efficient trust laws that offer a high level of asset protection. Liechtenstein trusts can be used to hold a variety of assets, including real estate, stocks, and cash.
- Tax laws: Liechtenstein has a favorable tax system, which can be used to minimize tax liability and protect assets. The country has a low tax rate compared to other European countries, and it offers a number of tax incentives for individuals and businesses.
- Political stability: Liechtenstein is a politically stable country with a strong and efficient government. The country has a reputation for being business-friendly and welcoming to foreign investors.
Cook Islands: Situated in Polynesia, in the middle of the South Pacific Ocean, Cook Islands is an archipelago with 15 islands. The small island nation is known for their strong asset protection laws, and its trust laws are particularly popular among investors, offering significant protection to assets held in trusts.
The Cook Islands is a self-governing territory in the South Pacific that has strong asset protection laws, including the Asset Protection Trust Act of 1984.
Here are some factors that make the Cook Islands an attractive jurisdiction for asset protection:
- Asset Protection Trusts: The Cook Islands was one of the first jurisdictions to offer Asset Protection Trusts (APTs), which are designed to protect assets from creditors. APTs in the Cook Islands can offer strong protection because they have a statute of limitations of two years, which makes it very difficult for creditors to challenge the trust.
- Confidentiality: The Cook Islands has strict confidentiality laws that protect the privacy of individuals who establish APTs. The country has strict bank secrecy laws that make it difficult for creditors to access information about the trust or its beneficiaries.
- Legal system: The Cook Islands has a unique legal system that is separate from that of New Zealand, with which it is “in free association”. This means that creditors would need to go through the Cook Islands legal system in order to challenge an APT, which can be a difficult and expensive process.
Nevis: Nevis is a small island situated in the Caribbean Sea. Nevis and its neighboring island, Saint Kitts, constitute one country: the Federation of Saint Kitts and Nevis.
Nevis is widely considered to be a good country for asset protection due to its strong privacy laws and favorable legal system.
Here are some factors that make Nevis an attractive jurisdiction for asset protection:
- Strong privacy laws: Nevis has strict privacy laws that protect the identities of its offshore company owners and members. This means that it’s difficult for creditors to discover the identity of the company owner, which can help to protect assets from legal action.Nevis enacted favorable LLC legislation in 1995. And in 2015, they updated their LLC legislation to boost the protective features for these companies. The Nevis Limited Liability Company Ordinance of 2017 is riddled with barriers preventing creditors from grabbing LLC assets.
Similar to the Cook Islands, Section 60 of the Ordinance states that a charging order is the only remedy that can be used by a creditor, and that no punitive charges can be attached to it.Section 60 (15) determines that charging orders are good for only three years, and are not renewable.
And in case of a lawsuit, Section 60 (4) allows you to just give away your portion of LLC’s property to your partners, or exchange it for some other property, providing you with liquidity.Section 60 (7) reinforces that no foreign judgments will be entertained in Nevis. And even with a court decision from the US (or elsewhere), the claimant will have to litigate in Nevis all over again.
In addition, Section 62 states that to be able to bring legal action to Nevis, a creditor must first deposit a bond of $100,000 with the Ministry of Finance…
- Specialized legal system: The country has a legal system that is based on English common law and is known for its strong asset protection laws. The country has a specialized court system, the Nevis International Court, which is designed to handle cases involving offshore trusts and corporations.
- Trust legislation: The island nation has a favorable legal system for trusts and does not recognize foreign judgments, which can help to protect trust assets from legal action.
- Tax benefits: Nevis has no income, capital gains, or inheritance taxes, which can make it an attractive destination for individuals and businesses looking to protect their assets and minimize tax liability.
Belize: Belize, formerly known as British Honduras, is located in Central America, bordering Mexico and Guatemala.
Limited Liability Companies (LLCs) in Belize are regulated by the International Limited Liability Companies Act of 2011. The Act is based on similar legislation to that enacted by Nevis and the Cook Islands.
Just like the other two jurisdictions, Belize does NOT recognize foreign judgments and court orders against a Belize LLC.
And while Belize is much more accessible for North Americans than the Cook Islands, there are other very important disincentives for launching court procedure there.
To be able to litigate in Belize, a claimant must first deposit the greater of the following two amounts with the Supreme Court of Belize:
a) $50,000
b) half of the claimed amount.
So if someone comes to Belize claiming $40,000 worth of your assets, they will first have to post $50,000 with the court. And if they try to claim $5 million, the bond amount will be a nose bleeding $2.5 million.
That’s an enormous disincentive to even consider suing someone in Belize…
Which asset protection structure is best?
There is no one “best” asset protection structure that will work for everyone, as the most effective structure will depend on a variety of factors such as the specific assets involved, the nature of potential threats, the tax and legal implications, and the individual’s overall financial situation and goals.
However, here are some common asset protection structures that are often used:
- Limited Liability Companies (LLCs): LLCs are a popular asset protection tool because they offer the owners limited personal liability for the debts and obligations of the company.This means that creditors cannot generally go after the personal assets of the owners to satisfy company debts.
- Asset Protection Trusts (APTs): APTs are designed to protect assets from potential creditors, and are often used in offshore jurisdictions where they offer additional legal protection.APTs typically involve transferring assets into a trust, with the individual or business retaining some control over the assets while also protecting them from potential legal action.There are many “flavors” of APTs, including Irrevocable Trusts, Intentionally Defective Grantor Trusts, Irrevocable (Self-Settled) Asset Protection Trusts as well as Irrevocable Dynasty Trusts, to name but a few.
Note: Sovereign Confidential members benefit from a wealth of deep-dive reports on the various types of Trust structures, as well as on a host of domestic and offshore jurisdictions offering effective legal frameworks for asset protection. To gain access to our full premium intelligence library, join Sovereign Confidential today.
- Family Limited Partnerships (FLPs): FLPs are another common asset protection structure that involves transferring assets to a partnership, with the individual or business retaining some control over the assets. FLPs can offer some protection from creditors, while also offering potential tax benefits.
- Homestead Exemptions: When it comes to real estate, one of the more prudent actions you can take in the US is to select the right state in which to buy. And that means picking one with strong homestead exemption laws.A homestead exemption is a law that shields the value of your primary home from certain property taxes, creditors, or unfortunate circumstances that arise from the death of your spouse.(The protections generally are available to individuals, but NOT to corporations, partnerships, or LLCs.)In short, a strong homestead exemption means that creditors can’t force you to sell your home, even if you have to file bankruptcy.
Homestead exemptions are available in some states in the US, and offer protection for a portion of the equity in a primary residence from creditors.These laws are intended to keep you from becoming homeless during extreme financial hardship.
That said, homestead exemption laws do NOT protect you from secured creditors such as your mortgage company.
If you stop paying your mortgage, your lender can and will foreclose on you.
- Insurance Products: While not traditionally used as an asset protection structure, insurance can be an important part of an overall asset protection plan.For example, liability insurance can help protect against potential legal action, while life insurance and disability insurance can help protect against unexpected events.
The bottomline
Ultimately, the most effective asset protection structure will depend on the specific circumstances of each individual or business, and it’s important to work with a qualified legal and financial professional to develop an asset protection plan that is tailored to your needs and goals.
It’s worth noting that asset protection laws can be complex and vary widely from country to country. It’s important to seek advice from a qualified legal or financial professional before making any decisions regarding asset protection.
If you’d like to educate yourself before engaging the services of a professional, be sure to join Sovereign Confidential today.
