ASSET PROTECTION STRUCTURES
Asset protection strategies vary based upon the type and value of the asset to be protected, the ownership of the asset,
and the need to use the asset in business.
A few types of assets are exempt according to current bankruptcy law. This is little consolation for most clients,
however, who would prefer an asset protection strategy that would make it unnecessary for them to file bankruptcy.
Bankruptcy asset protection (exemption statutes) typically exempt only small amounts of assets and are relatively
unimportant for persons with substantial means, except for tax-qualified retirement plans, which are frequently exempt
without limitation. These exemptions are, however, being eroded by case law, and consequently, persons with
substantial retirement plans may want to investigate other asset protection strategies.
The manner in which title to the property is held also governs asset protection strategies. Assets owned as tenants by
the entirety (joint tenancy between husband and wife) is exempt from the creditors of only one of the spouses. This
may cover a motor vehicle accident, but probably not a negligence claim arising out of the ownership or management
of real estate which is owned by both parties. It will certainly not protect the parties from contractual liabilities (such
as a default on a loan to which both parties were signatories). In Illinois, only a residence may be held between
husband and wife as tenants by the entirety. In Missouri, however, husband and wife can own all assets as tenants by
the entirety. It is possible to “import” Missouri law to Illinois to obtain tenancy by the entirety protection for Illinois
assets.
Insurance represents another type of asset protection. However, many insurance policies exclude coverage for acts
which clients assume are covered. These “exclusions” are proliferating as insurance companies are attempting to
narrow their obligations to pay under insurance policies. Frequent exclusions are any act that was “intended” or
“expected,” which excludes from coverage a great many situations giving rise to liability. Other specific exclusions
include libel, slander, and many types of business risks.
Persons with significant assets and/or persons in high risk businesses and professions (some examples may include
engineers, landlords, manufacturers, physicians, construction, hauling and delivery services) may want to investigate
more serious asset protection strategies.
We design the following asset protection structures:
1. Entity creation: you can establish a corporation, a limited liability company (LLC), or a limited liability
partnership (LLP). These entities are relatively inexpensive to set up and maintain, and offer significant
creditor and asset protection, if properly maintained.
2. Don't put all your eggs in one basket: it is possible to set up various entities to hold various types of
assets. A simple example may be a landlord who owns 12 apartment buildings. The landlord could set
up three LLC’s and each of the LLC’s could hold one or several of the buildings. In this manner, a
liability (such as a fire resulting in a death) occurring in one of the buildings would not subject all the
assets owned by the other LLC’s to seizure and sale to satisfy the judgment.
3. Holding Companies: these multiple entities can be arranged to be held by a single holding company.
The holding company can be subject to the laws of a jurisdiction where asset protection is particularly
powerful. (Please feel free to contact us if you want to discuss which jurisdictions are “friendliest” to
serious asset protection.) These holding companies can also be set up fairly inexpensively.
4. Family Limited Liability Companies and Limited Partnerships: this is a very powerful asset protection
strategy which also offers significant federal estate tax planning possibilities for clients with higher asset
values who want to do serious creditor protection.
5. Irrevocable Trusts: Irrevocable trusts, if properly designed, can provide extremely powerful asset
protection strategies for the assets which are owned in the trust. For clients with federal estate tax
liability, irrevocable trusts can also create significant federal estate tax planning possibilities by reducing
the federal estate to a level at which no tax will be due. Please feel free to telephone us if you have
questions about the estate tax and creditor protection features of irrevocable trusts.
6. Offshore Planning: offshore planning is reserved for people who have serious creditor protection
concerns and/or serious asset levels. While the term implies that you have to deposit your assets in
another country, it is also possible to “import” the law of a foreign country into your plan.
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Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that, unless otherwise expressly
indicated, any federal tax advice contained in this communication, including attachments and enclosures, is not
intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the
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addressed herein.
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to us regarding estate planning or asset protection issues.
©2013 Cary, Welch & Hickman, LLP