It is not uncommon for individuals when reaching a level of wealth to have their attention drawn to the notion of protecting their resources from the potential impact of losing some or all of it due to a unfortunate legal action. The news reports of huge multi-million dollar claims for “spilled too hot coffee” etc. heighten the awareness and urgency to do something in order to protect oneself and their families. The first line of defense should always be a comprehensive insurance program to cover the possibility that such events can and do occur within a wealth strategy. This insurance should have provisions for defense costs and provide for an adequate level of coverage to protect you.

Asset Protection Trusts typically are in two categories, Spendthrift and Offshore. The Spendthrift Trust is the most common for trusts domiciled in the United State. They will not as a general rule protect the settler or creator of the trust. The Spendthrift trust is most often used to help protect those who are unable to manage their own affairs effectively. An example would be a family member who you would like to gift some assets to help them have a better life, but their current spending decisions may burn through the resources quickly with purchases of no lasting value. It would also protect the beneficiary from the claims of creditors since these assets cannot be attached. This can be an effective tool within a wealth management strategy to gift assets to an individual where the biggest concern is they will not be able to manage the resources and thereby go to waste.

Offshore Trusts are very different vehicles in that they are domiciled in foreign jurisdictions such as the Guernsey Islands, Isle of Mann, Jersey Islands and others. Conceptually these jurisdictions make it very difficult to litigate a claim. A claim won in the US cannot be attached to the assets in these trusts. In order to press a claim against these trusts it can only be made by filing a suit in that jurisdiction and by only using local legal counsel. All actions and court actions would happen there. This raises considerably the costs of pressing the claim forward and acts as a deterrent towards actions of this type. In addition, the laws tilt towards the trust domiciled there rather than the interests of a foreign (to them) claim. Offshore trusts can be effective yet the costs of establishment and maintenance are high. Offshore trusts can enhance the negotiating position of the creator of the trust against debtors.

Asset protection is complicated and help is important when negotiating through all the twists and turns in this area. Your entire wealth management team needs to be involved when putting together an effective Asset Protection Plan.

The foregoing content reflects the opinions of White Oaks Wealth Advisors and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.

Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.