What is Asset Protection?
Asset Protection involves a combination of legal structures that create barriers between your wealth and potential threats. The objective is to minimize the risk of potential liability and preserve your assets. A good asset protection strategy finds a balance between justice and the need to protect oneself in a litigious society. A well-crafted asset protection strategy is based on a comprehensive review of one's personal financial resources, assets and concerns. A strategic plan may include the formation of a limited liability corporation (LLC), a family limited partnership (FLP), a Domestic Asset Protection Trust (DAPT) or an Offshore Asset Protection Trust (OAPT).

What is the Homestead Exemption?
In some states the Homestead Exemption will protect equity in your primary residence from certain creditors. The level of homestead protection ranges from state to state and can range from minimal to unlimited protection. In Rhode Island the homestead protection is $500,000. In Massachusetts the homestead protection is $500,000, but the filing of a Homestead Declaration in the proper recording office is required, and in Florida the Homestead Exemption is unlimited.

What is Tenants by the Entirety?
Tenancy by the Entirety is a form of ownership of property for married couples. In states that recognize this form of ownership, the rules for acquiring property as tenants by the entirety differ. Depending on your state, owning property (such as your residence) as tenants by the entirety may protect the equity in the property from creditors of only one spouse.

What is a Personal Residence Trust?
Generally, a Personal Residence Trust is an irrevocable trust that holds title to your personal residence. During the term of the trust you retain the exclusive right to use the property and when the trust term ends the property passes to the designated beneficiaries. If you want to retain the right to rent the house after the term ends you may do so but will have to pay rent at fair market value. This technique allows you to transfer your residence at today's value, subject to gift tax, so you can pass on your appreciation to your children.

What is a Domestic Asset Protection Trust?
A Domestic Asset Protection Trust is an irrevocable trust that is formed for the main purpose of asset protection but may also be drafted to minimize transfer taxes. An independent trustee is designed to make discretionary distributions to a group of beneficiaries that can include the creator or settlor of the trust. Many states including Rhode Island have actual "Domestic Asset Protection Trust" statutes. The statutory requirements of a Domestic Asset Protection Trust and the protection offered by such a Trust vary from state to state.

What is Offshore Planning?
When a client moves their assets offshore the asset protection laws of the offshore jurisdiction govern. These jurisdictions have asset protection features built into their laws and they may offer more protection than a domestic trust. Offshore planning discourages a plaintiff from suing you in the first place by forcing them to litigate offshore. In general, offshore planning, more specifically an offshore trust, is more expensive to set up and maintain than a domestic trust but it can make it very difficult and sometimes impossible for a plaintiff to reach your assets. The most common offshore planning jurisdictions are the Cook Islands, Nevis and Saint Vincent.

Can a Prenuptial Agreement protect me from creditors?
A Prenuptial Agreement is essentially a contract made between a man and a woman before marrying in which they give up future rights to each other's property in the event of divorce or death. A "prenup" can also be one of the most effective asset protection tools available. While a Prenuptial Agreement is usually drafted to address issues that may arise in divorce such as alimony and property settlement, a well drafted prenup can also address protection from the present and future creditors of the spouses.

Can I protect my business from creditors?
Yes, corporations, limited liability companies and family limited partnerships can provide liberal asset protection for your business. Unless there is a fraudulent conveyance to the business, a personal creditor generally cannot reach assets of the business. The choice of entity and the protection it may provide will depend on a number of factors. Maintaining proper corporate or other legal formalities is critical in protecting your business assets from personal creditors.

What is a Partnership?
A Partnership is an association of two or more persons to carry on a business for profit as co-owners. A Partnership can be general or limited. Partnerships are generally governed by the partnership laws of your particular state. As a general or co-general partner you are responsible for all Partnership debts and any negligent acts of your partners. In a Limited Partnership management rights and responsibilities are vested in one or more general partners while the ownership interests are vested in limited partners. A limited partner is generally not responsible for all Partnership debts or negligence.

Limited Partnerships also protect the assets of the business from the creditors of a limited partner who may not reach the assets of the partnership unless the asset was part of a fraudulent transfer. A creditor's only remedy against a limited partner is a "charging order" which allows access to distributions made by the general partner to the limited partner.

What is a Family Limited Partnership?
A Family Limited Partnership is a limited partnership where all the partners are family members. Benefits of the Family Limited Partnership include the facilitation of intra-family transfers, discounts that can save on transfer taxes, centralization of management, and the avoidance or resolving of family disputes. There are costs associated with organizing and maintaining the partnership. Additionally, the Internal Revenue Service closely scrutinizes Family Limited Partnerships for state and gift tax purposes so it is imperative that the formalities of the partnership are adhered to and the business is operated as a separate and distinct entity.

What is a Delaware Series LLC?
The Delaware Series LLC Act provides for the creation of separate "series" within an LLC whose debts and other liabilities are enforceable against that Series alone. The Act also provides that classes or groups of members can be established, having whatever rights the LLC agreement says they have. The combination of the two provisions allows a Series to be treated in many ways as a separate LLC. Thus, the Series provisions of the Delaware LLC Act allow for the creation of separate protected pieces within one limited liability box. Each Series can have its own separate business purposes. A Series can be terminated without affecting the other Series of the LLC and a Series can make distributions to its own member without regard to the financial condition of the other Series. For example, a real estate investor with several properties can separate ownership so that a lawsuit against a single property will not jeopardize the owner's other investments.

Will a Professional Corporation ("PC") Protect Me?
A Professional Corporation can be used to defend oneself against the negligence of a partner in your practice because your responsibility is limited to only those acts committed by you or your employees. A Professional Corporation can not be used to limit personal liability for malpractice. If you lose a case, any amount not covered by your insurance will be satisfied from your personal assets. An asset protection strategy to protect your personal assets is essential for a comprehensive liability shield.

What is a Life Insurance Trust?
Generally, an estate owner, grantor or settlor creates a trust and either makes a gift to it to purchase insurance or transfers the ownership of a life insurance policy to the trust. If an insurance policy is transferred, it will be removed from the settlor's taxable estate after only three years. Gifts are made to the trust to pay the insurance premiums and upon death, the proceeds can be used to pay estate expenses. Amounts transferred into the trust have the added advantage of building cash value free of income tax and are fully protected from any lawsuits or claims against the settlor.

A Life Insurance Trust can also provide money for family living expenses or business buyouts, it can allow gifts of estate assets to charitable organizations without disinheriting heirs who can receive the insurance proceeds, and it can create a fund to support a disabled child while passing other assets to able-bodied heirs.