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Asset Protection

Asset protection or more accurately wealth protection planning, should be an essential component in the development of financial strategies of all who have achieved, or aspire to attain, independent financial success and for those who are fortunate to have inherited family wealth. Modern day financial planning is incomplete without due consideration of wealth protection issues.

The twentieth century has provided unlimited opportunities for wealth creation, particularly in the USA, and more recently in Asia and Latin America. In many instances that wealth, and the more established European wealth, is now being passed on to the next generations. Unfortunately over the past two decades there has been a progressive escalation of risk factors adversely affecting the creation and retention of wealth. Unless the proper techniques of wealth protection are applied, much of that wealth will be lost in coming years through the failure of benefactors and their advisors to take the appropriate steps to protect the asset base from a variety of risks and contingencies.

Financial disaster may arise from a wide variety of risk factors. Punitive inheritance tax regimes, extravagant family members, mismanagement of business enterprises, political changes resulting in expropriation, or the imposition of currency controls are the more traditional risk factors influencing wealth protection strategies. Risk factors affecting the preservation of wealth now also include :

• Litigation particularly for professional malpractice or negligence.
• Marital breakdown or family estrangements.
• Mismanagement of investment portfolios as greater use of derivative products increases risk exposure.
• Political risk and fiscal confiscation.
• Forced heirship laws.
• Recognition of liability for environmental damage.
• Punitive damage awards by juries or over zealous courts.
• Increased exposure of non-executive directors for actions of corporate management.
• And various other categories of contingent creditors.

Additionally the globalisation of business and the internationalisation of investment strategies has broadened the area of risk exposure. Any investor, company director or professional involved in business or investing in real estate in the U.S.A. should implement a wealth protection strategy as part of their financial planning arrangements.

There are many different strategies that may be adopted to protect assets. Some of these are straight forward common sense risk management techniques. Others involve more complex structures using differing forms of asset ownership. It is apparent however that offshore based asset protection strategies should be an integral part of most wealth protection plans. An offshore based wealth protection structure will provide a greater degree of protection than a wholly domestic based plan.

The starting point of any wealth or asset protection plan is a consideration of the laws of the client's domestic jurisdiction. Setting up an offshore asset protection plan will not absolve the client from the need to comply with domestic laws. Laws which may be relevant would be those governing issues such as exchange controls and foreign investment, estate duties or inheritance taxes, capital gains taxes, gift or transfer taxes, bankruptcy and in particular fraudulent conveyances, and matrimonial settlements. Consideration of these issues will help determine the nature of the assets to be transferred into the asset protection structure and whether or not such structure can be based offshore.

The principal objective of the client will be to protect assets against future legal action which may arise, for example, from his or a beneficiary's subsequent bankruptcy. Consequently the domestic laws against fraudulent transfers of property are of paramount importance. In most jurisdictions there are laws which operate to set aside transfers of property which are made with the intent to defraud creditors, and in many instances intent to defraud is deemed to occur where transfers of property are made within a specified period of time. For wealth protection planning to be effective it is essential that asset transfers are made well ahead of any potential creditor action, properly documented and placed in a legal environment which offers the utmost protection from potential attack.

As most wealth protection plans will involve the use of an offshore trust, it is important that the selected offshore jurisdiction have English common law as the foundation of its legal system. Civil law jurisdictions are generally not suitable for offshore wealth protection trusts. There are many legislative issues that need to be considered in selecting the offshore jurisdiction that offers the best wealth protection facilities. Please refer to Comparison of Offshore Trust Jurisdictions.

Asiaciti Trust offers a specialised service in wealth protection planning focused primarily around the use of offshore based entities. We assist professionals and their clients to develop appropriate asset protection strategies to preserve wealth. When it is necessary to consider domestic legal issues we work with specialist outside legal counsel.

For the North American and European markets we offer through our Cook Islands and Singapore offices, an international wealth protection service known as Heritage. Further information can be obtained from either office.