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Asset Protection There are literally dozens of various asset protection structures in use today. Engaging in after-the-fact asset protection planning may be deemed to be a fraudulent transfer allowing the creditor to set aside the planning. Asset protection began to develop as a stand-alone area of the law in the late 1970s. Asset protection that works must be very practical. Some creditors may stop trying to collect when they realize that there is no equity in the residence. A creditor's sole remedy would be to bring a fraudulent transfer action against the trustee of the foreign trust, and attempt to show that the settlement of the trust by the debtor constituted a fraudulent transfer. In most states (and many foreign jurisdictions) interests of debtors in LLCs and limited partnerships are not subject to attachment because of the so-called charging order limitation. The common downside of a fraudulent transfer is the creditor's ability to set aside the transfer, a debtor may have nothing to lose (other than the transaction costs) by engaging in planning that may (or may not) be deemed a fraudulent transfer. Over the years, numerous legal structures have been developed to split up legal title to assets from control and beneficial enjoyment. No asset is more important to shield from creditor claims than a personal residence. The QPRT is a great example of the practical efficacy of asset protection. One way to strip out the equity is by obtaining a bank loan. Over the years, this new field of law enjoyed a marginal reputation, but started going mainstream in the mid-1990s. The extent to which the debtor is willing to pursue asset protection is important in determining the appropriate strategy. QPRTs are irrevocable trusts with spendthrift clauses the interest passing to the remainder beneficiaries is generally not subject to creditor claims (absent a fraudulent transfer challenge). An article in the Wall Street Journal claimed that 60% of America's millionaires have considered engaging in asset protection planning. In some cases a creditor will obtain a charging order and try to out wait the debtor. If the creditor can seize a sufficient percentage of the shares, the creditor will acquire control of the corporation and access to the corporation's assets. Asset protection does not deal with secrecy or hiding assets. The focus of all asset protection planning is to remove the debtor from legal ownership of assets, while retaining the debtor's control over and beneficial enjoyment of the assets. Some creditors will always dig deeper than others, and if the debtor cannot substantiate the transaction as an actual loan, the deed of trust will be set aside by a court as a sham. Certain state statutes require LLCs or limited partnerships to have a business purpose, and there is no business purpose in holding a personal residence in a legal entity. If the debtor owns assets through a corporation, the shares of stock of the corporation can be seized by the debtor's creditor. In addition to stripping out the equity, it is also possible to protect your residence by transferring ownership but retaining control and beneficial enjoyment.
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