How to Protect Your Assets From Lawsuits

Many Doctors Use This Strategy… and You Can Too.

Many people only realize too late that when it comes to money, the government isn’t your only enemy.

Consider the case of a young couple I met in Atlanta.

They were newly married, with their first bundle of joy on the way. They had recently bought their first home and were eagerly improving it for their family’s enjoyment in the years ahead.

One project involved building a retaining wall in their garden. To save money, they hired a contractor who showed up on a local neighborhood Facebook page.

The guy came highly recommended, but what the couple didn’t know was that he wasn’t registered and bonded with the state employment agency. He didn’t have insurance to cover potential accidents involving his employees.

On the second day of the job, they heard a loud noise from the back garden. The half-built retaining wall had collapsed, burying one of the contractor’s employees. The unfortunate worker did not survive.

Sometime later the couple received a legal letter from the man’s family. Because he was injured working on their property, they demanded compensation for his death.

Because his employer was unregistered with the state and uninsured, the liability fell squarely on their shoulders. They lost everything they had.

It wasn’t the taxman who brought them to ruin. It was the risks of everyday life.

In my research and writing on wealth protection over the years, I’ve come across many cases like this, although few so poignant. The common theme was people building their wealth and future without a thought to how to protect it from danger.

Of course, most people aren’t faced with massive lawsuits every day. But certain categories of professionals are constantly under threat. Medical professionals and attorneys are particularly vulnerable to lawsuits from dissatisfied patients and clients.

Fortunately, there is an easy solution to these threats… but one that requires acting early, long before the dangers materialize.

It’s called an asset protection trust, or APT. They take various forms, but the core idea is to create a legal structure that owns a person’s assets and holds them in trust for their use. Because an APT is a separate legal entity from the individual who creates it, it is shielded from any liability accruing to the latter.

For example, in the case of the Atlanta couple, if their home was owned by an APT, only the assets in that trust would be vulnerable to seizure by the family of the unfortunate workman. Other assets, such as bank accounts, insurance policies, and retirement accounts, would be safe.

One of the key legal requirements of a successful asset protection trust is that they must be in place before any potential liability arises. You can’t wait until a lawsuit has been filed to create a trust and move your assets into it.

That’s why in many medical communities, for example, one of the rights of passage for a young doctor is establishing an APT. Creating a trust with no particular threat in mind is a sure-fire way to convince a judge that it was set up for legitimate reasons and not to avoid a specific claim.

Some U.S. states have particularly strong APT laws. Nevada and South Dakota, in particular, are considered the closest thing you can get to an offshore tax haven without leaving the U.S.

That’s fine for many people. But if you are really determined to protect your assets, nothing beats an offshore APT.

Conceptually, there is no difference between a domestic and offshore APT. Both fulfill the same function. The difference is that a foreign APT involves far more legal effort and cost to attack than one inside the United States. Most U.S. attorneys will outright refuse to accept a case from a claimant if the target has an offshore APT.

Jurisdictions that offer strong APTs include Liechtenstein, the Cook Islands, and Nevis, part of the Caribbean nation of Saint Kitts and Nevis. All three specialize in exceptionally strong privacy for the beneficiaries of APTs, and court systems that rarely—if ever—allow litigants to get at assets inside them.

In addition, Belize has exceptionally strong protections for limited liability companies, which are cheaper and easier to set up than an APT.

Anybody wanting to file suit against a Belizean LLC must deposit $50,000 and half of the claimed amount just to get the case on court roll.