Asset Protection – BRIDGE to another World

The world of Asset Protection is confusing.  The world of the Internet has only made it more so.  This post is one way in which I help my clients understand how Asset Protection really works.  I hope this helps you too.

There are 2 worlds for a U.S. Citizen. I will deem them World #1 and World #2.

WORLD #1

The first world is the one you are used to. This is the ONSHORE or domestic world. It is comprised of all of your U.S. Companies (operating and holding) and all of your personal domestic operations and assets, and even you as persons living here.

Within this U.S. world, the U.S. courts have jurisdiction and ultimate authority over both the assets, the income, and even the persons living here. Those same courts have a set of rules and laws that they must (or I should say are supposed to) follow.  One of these includes the idea of the corporation as a separate entity and the shield this provides. However, the courts have a wide latitude to interpret all of these things and when they do interpret situations, sometimes even in direct contrast to the settled law, the appeals process is the prescribed remedy.  This is not only expensive but also inefficient: very rarely lower court rulings are overturned.

The net result is that for many who live in WORLD #1, the rules seem unfair and the system slanted against them.  It is when this happens that they start to consider what’s outside and how it may help – Enter World #2.

WORLD #2

The second world is that of the OFFSHORE or foreign. This is comprised of any corporations or trusts and the assets held by these entities and even persons not residing in, connected to, or subject to the U.S. jurisdictional rules.

In this world the US courts DO NOT control and the U.S. judges and juries have little or no influence over what happens. This world is governed by the laws of the various jurisdictions which comprise it as well as the applicable treaties those jurisdictions may have with the U.S. (WORLD #1)

For my Asset Protection clients, the most relevant of these countries is The Cook Islands. This country has specific laws which do not allow the U.S. to have any influence at all in the Cook Islands courts, or over a Cook Island Entity. In fact the courts in The Cook Islands are specifically prohibited from following a U.S. court order and are bound only to the court of the Cook Islands itself.

This, and a host of other very specific provisions, have made this jurisdiction particularly attractive to people who would like to have this protection for some or all of their assets.

The trick is to construct a bridge that allows you to have some of yourself in World #1 and some in World #2.

THE BRIDGE

Your Asset Protection Plan is that Bridge. It legally connects those 2 worlds. It does so by connecting a specific trust to your U.S. assets and companies.  This Trust is organized to operate under WORLD #1 rules to hold those WORLD #1 assets, but is also designed move fully to WORLD #2 when a threat arises.

The key here is to understand the actual HOW in the process. Since the U.S. courts and judges have jurisdiction over the U.S. world, which includes the assets themselves, then even ultimate ownership of those assets by a WORLD #2 entity does not remove the power of the U.S. courts with specific respect to the WORLD #1 assets.  This includes YOU as long as you remain yourself part of WORLD #1.

For true protection both the legal entity AND the assets need to cross the bridge and reside in WORLD #2. The Magic of the asset protection plan is the legal capacity to make the jump. This is truly an astounding possibility because without a plan in place, then any attempted jump itself would very likely be a prohibited transaction.

You simply MUST have the bridge in place. However, if you do have the bridge in place, then you can move as much of the Trust assets as desired to WORLD #2 legally and safely.

CONCLUSION

What’s even more amazing about this bridging capacity of the Trust is that unless and until you actually need to cross the bridge, your Trust and all your assets can safely reside in WORLD #1, where you are and where you can keep an eye on them and use them.  This single feature of the way I do my planning is based on experience in asset protection field since 1997.

Most other planners simply do not know how to build a solid bridge and instead favor fully transporting the assets to WORLD #2 now at much greater initial expense, annual maintenance cost, and IRS scrutiny and reporting.

While this might be the recommended approach in some cases, it certainly is not in every case.  And having created many Asset Protection Plans over the last two decades, I know from personal experience that the Bridge Approach is often much more effective for the average client situation.  It is not only less expensive, requires far less IRS and government paperwork and filing, but leaves the clients with a comfortable handle on their assets in the world they are use to.  It does all of this while still providing the full power of the WORLD #2 protection when it is truly needed.