How do rich people hide their assets from potential creditors, legal actions, confiscations, and so forth? Well, generally, they don’t. Rather, they use financial planners that help them figure out how to use laws to protect and reposition their assets legally, using legal entities under trust laws, corporate laws, partnership laws, and tax loopholes that do not pose criminal liability.
Guest post by Rocco Beatrice
The rich have figured out that the trick in protecting assets is to not legally own assets, but rather to “control” them. Ownership is the absolute right to possess and use property to the exclusion of others. Control is the control of others or skillfully influencing others to one’s advantage. By not owning the asset, estate taxes, probate, lawsuits, etc. are avoided, and taxes are reduced or eliminated.
Ownership is absolute; control is not. If assets are in the control of others, then you technically have no control over how those assets can be transferred, thus no lawsuit or punitive action can access the assets.
Using Trust Funds to Protect Assets
Ever heard the phrase “don’t put all your eggs in one basket”? Diversifying assets worldwide is a great way to protect them. Everyone can do this; the numbers may be smaller if you aren’t wealthy, but there are ways that the average person can hide their assets.
- Truly Independent Trustees
- Irrevocable Trusts
- Foreign Trusts
- Limited Liability Companies
- Foreign Limited Liability Companies
- International Business Companies
- Limited Partnerships
- Corporations under Chapter C
- Corporation under Subchapter S
Anyone can take advantage of foreign laws and tax loopholes to create legal entities to help protect their assets and mitigate risk.
Prior to 9/11, many wealthy people used offshore trusts in areas where corporate finance laws offered a level of secrecy and obfuscation that was considered to be nearly reprehensible by taxation and law enforcement officials in the United States. Public opinion considered this to be sketchy. Taxes, however, must be paid all over the world. Hiding money and property is a weak solution that can come back to haunt you.
The law doesn’t stop anyone from repositioning their assets and managing their income taxes to their advantage. Having a foreign asset protection trust is not illegal. They merely want to know if you have such a structure by filling in the box on your tax return with a simple yes, and if you have a foreign structure, the mere reporting does not trigger an examination of your records. It’s perfectly legal. That’s how they hide assets.
The wealthy may use a properly drafted, funded and managed family trust, which provides true asset protection. This can help reduce tax liability and protect assets from being taken by a creditor, and may also help preserve assets for a person’s children or other heirs.
The trustee can distribute trust funds in accordance with the grantor’s wishes, which means that it may be possible to structure payments to the heirs instead of granting a lump sum. Structuring payouts may be especially beneficial if a person’s heirs are very young at the time of the grantor’s death. In addition, corporations may be placed within irrevocable family trusts to give added protection.
You may have heard of using LLCs (limited liability companies) and revocable trusts to shield assets. Creating a corporation or LLC is a way to house assets beyond the reach of creditors, but there are requirements that must be met in order to avoid losing the protection of the corporate form. One such requirement is that corporate assets are to be kept separate from personal funds. Unfortunately, this may be an unpredictable and/or weak way to protect assets.
The problem with LLCs is that they can be easily construed to be vehicles for hiding cash with ulterior motives. There is nothing illegal about asset protection; unfortunately, there is extensive case law involving LLCs being used for unrighteous motives. For this reason, skilled attorneys can use this case law to build a persuasive argument that suggests an LLC was used as an unethical front for a person to hide assets.
Another way to hide assets is giving them away to heirs prior to the execution of a will, but gifting assets to heirs before death still allows creditors to access these gifts when the court considers that they could have been used to pay off debts in the four or five years prior to the gift. There’s also the issue of trusting heirs with funds and property that could be lost through irresponsible financial behaviour.
Individuals with significant assets may be able to create multiple trusts with different objectives in order to gain the greatest possible protection. A financial or family trust expert can help detail the best types of protection available to someone, based on their personal goals and circumstances, and ways to reduce or avoid tax liability, and then help to facilitate the creation of new legal entities and the transfer of assets.
Wealthy people can use an irrevocable family trust structured in such a way to take responsibility away from rich people while still allowing them to control their property and finances, to protect their assets. Since they do not legally own the assets in the trust, they cannot lose their fortunes, but this doesn’t stop them from being able to enjoy their wealth, as they still control how their finances should be invested and used. Not only is this efficient for asset protection, but it can also be used instead of prenuptial agreements and for estate planning purposes. It’s like renting an apartment or leasing a car, giving the ability to utilize assets and benefits without actually owning them.
So what should one do to protect their assets from those wishing to confiscate them? First, consider the type of protection you’re seeking. Usually, the goal is to protect assets and property from lawsuits, bankruptcies, excessive taxation, and long-term care costs.
Living trusts are not adequate for asset preservation due to their reversible nature, since a grantor is understood to be able to revoke the trust during his or her lifetime. Because of this, judges consider property held by living trusts to be ultimately owned by individual grantors.
An irrevocable trust fund or a family trust can be the best asset preservation strategy money can buy, but only if the legal instrument is structured and managed in a certain way.
The author, Rocco Beatrice, is a globally recognized expert in asset protection and inventor of the UltraTrust®, an irrevocable trust that is carefully created and funded with bulletproof asset protection in mind. An UltraTrust® effectively does away with the burden of individual ownership while allowing grantors to enjoy and control the assets distributed by a professional trustee, all the while reducing overall taxation and providing superior estate planning options. For more information on setting up an irrevocable trust fund to protect your assets, visit Rocco Beatrice online at UltraTrust.net/cannabis.