Putting assets in the name of a spouse or a parent is a strategy, but it’s not a good one because you’re putting them in someone else’s name, who could still be subject to lawsuits or even a divorce. Today, we’re going to talk about my two favorite strategies when it comes to asset protection planning. I’m a trust, LLC, and estate planning attorney, so what I really love to do is set up asset protection trusts. When you’re putting together an asset protection strategy, it involves a lot of different pieces to the puzzle. Today, I’m only talking about two of my favorite strategies from my perspective as a trust and estates attorney. I’m not talking about umbrella policies, malpractice policies, or anything related to that—though those are certainly a part of this equation. What I’m focusing on is how we structure legal entities, create barriers between your personal assets, give you access to assets, and make sure assets are out of your name.
I think most people are familiar with limited liability companies, or LLCs. You can set these up in every state, and even in different countries, they have LLCs. However, not all jurisdictions—whether domestic or foreign—have the same type of laws around their limited liability companies. I won’t go into a lot of detail, but I’ll probably do a video comparing different jurisdictions and their top LLC setups. I always tell people that an LLC in any jurisdiction is better than no LLC at all.
So, real quick, how does an LLC work? This is just the first part of my favorite strategy. Number one is the LLC—the limited liability company. It’s a business structure where you move business assets into it, and if there’s any type of lawsuit against your business, those lawsuits should be, if properly structured, exclusive to the business. If there’s a judgment against the business that happened in the course of running the business, it should be contained within the silo of that business entity, the LLC. It shouldn’t bleed over into your personal assets—unless you haven’t structured your LLC correctly or you’re not running your business correctly. Judges usually have discretion to “pierce the corporate veil,” as it’s called, and say, “Hey, this LLC has basically been abused, and we’re going to allow a creditor to go after personal assets.” This video isn’t about that, but it’s something to think about because a lot of people think an LLC is bulletproof and can accomplish anything.
One of the things I think people should consider when setting up an LLC is where to set it up. Privacy is really, really important. Not all states have the same level of privacy for LLC owners. Some states make you report all of your information, or at least make it publicly available. For example, if you set up an LLC in Texas (where I’m located), you could go to the Texas Comptroller’s website, look up taxable entities, type in the name of an entity, and find out who set it up and who owns it. You can do this in a lot of different states by going to the Secretary of State website, typing in an entity or an individual’s name, and seeing the entities related to them—it’s part of public knowledge, a public database.
However, some states—like Wyoming, Nevada, and a few others—don’t make that information publicly available. I really like Wyoming for this reason. In these states, the only thing that’s public is who set up the entity. You can limit your name being associated with that entity even though you own it by using what’s called a registered agent to set it up. In Wyoming, for example, if you use a Wyoming registered agent, then that registered agent—not you, not the person who owns the entity—is the only person associated with that entity in terms of public knowledge. That person exists exclusively to receive service; so, if there’s a lawsuit against the entity, they would serve that registered agent, who would then pass it along to you. But again, no one knows you are the owner of that entity. That’s my first favorite asset protection strategy—an LLC that gives you privacy, with an emphasis on privacy.
Number two is an asset protection trust. There are domestic asset protection trusts, which I really like, and foreign asset protection trusts, which I also really like. Not every client necessarily needs one or the other—maybe they need a combination, maybe they need a foreign asset protection trust, or maybe they need a domestic asset protection trust. But the combination of the asset protection trust together with the LLC, where the LLC is a holding company owned by the trust, is a powerful, powerful combination.
In general, the idea behind an asset protection trust is that it’s an irrevocable trust. When it’s irrevocable, the assets inside of it are protected from creditors. A true domestic or foreign asset protection trust is when an individual sets that irrevocable trust up for their own benefit—not for someone else. Not all states allow you to do that. For example, Texas, where I’m based, doesn’t have a true domestic asset protection trust. I set these up in South Dakota because South Dakota has the best trust laws, particularly around privacy. I love the privacy that South Dakota allows. Nevada also has great laws, but they’re not on par with South Dakota when it comes to privacy laws around trusts.
So, there’s an additional layer when you combine an LLC and a trust. When you have just an LLC, that’s one layer, but adding a trust creates an additional layer—an additional layer of anonymity, an additional layer of creditor protection. You’re now twice removed, or two chains of command removed, from those assets, even though you can structure that trust’s legal ownership in a way where you still have control over the assets. What has changed is the nature of legal ownership, and that’s where these asset protection strategies become important. You have to change the nature of legal ownership from you as an individual to something or someone else. You don’t want to just give it to someone else—sometimes people put assets in the name of their spouse or their parent, and that is a strategy, but it’s not a good one. You’re putting it in someone else’s name, who could still be subject to some types of lawsuits, or maybe there’s a divorce, or maybe someone dies—there are different things that could happen that could compromise your strategy.
But with the LLC and the trust together, you can’t really lose control. With the trust, you’re able to retain the benefit of those assets—you’re not giving up the benefit to someone else and then asking them to share it with you. You’re giving it directly to yourself, but on paper, you’re giving up ownership of those assets. Together, the LLC and trust work seamlessly. Again, I love using a Wyoming LLC with a South Dakota asset protection trust. Just as an additional nugget of value here, you’ll see a lot of people use offshore entities—many people like Nevis LLCs or Cook Islands trusts, maybe a Cook Islands LLC with a Cook Islands trust. There are a lot of different things out there, but this is just an introductory conversation around different strategies and my two favorite things to do right now in 2024.