Asset Protection Planning

As estate planning and probate attorneys in Memphis who prepare wills and trusts, we also advise clients in the area of asset protection.
There are several estate planning strategies that may protect your assets from lawsuits, creditors and other predators. Below is a list of some strategies we commonly use in our practice. A summary of each strategy follows the list, or you may click on a strategy to be taken directly to its summary.

LIMITED LIABILITY COMPANIES (LLCs)

Using a LLC as the center-piece of a properly designed asset protection plan, you may be able to place a significant portion of your assets beyond the reach of future judgment creditors, while still retaining complete control over those protected assets. A LLC may be able to deflect judgment creditors away from the assets of the LLC. Under current state laws, creditors cannot directly take the assets of the LLC to satisfy the personal debt of the member.

 

The LLC allows a family member to exercise complete control over a business or investment activity while passing the ownership and income to other family members, or trusts for their benefit. It supports and encourages the retention of control of special family assets, such as businesses, investments, farms and other real estate, and inherited property.

 

In addition, the LLC provides gift and estate tax reductions of the LLC interests based on valuation discounts applicable to the LLC interests. The value of the LLC interest after applying valuation discounts is the amount that is subject to gift and estate taxes, not the value of the assets that are owned by the LLC.

 

The Wyoming Close Limited Liability Company is the latest development in the LLC arena for achieving asset protection planning, as well as valuation discounts for estate and gift tax purposes. The use of a LLC is an effective, ethical and legal way to minimize the disruption from attacks on your wealth and to reduce the risks of being completely depleted by a lawsuit.

 

Because of the benefits of the Wyoming Close LLC and other planning opportunities available in Wyoming, Larry is licensed to practice law in Wyoming.

 

There are Case Studies on this site illustrating the use of the Wyoming Close LLC as part of a complete estate plan.


FAMILY LIMITED PARTNERSHIPS (FLPs)

The Family Limited Partnership is an alternative to the Limited Liability Company. However, when structuring a Family Limited Partnership, multiple entities are used to obtain similar benefits afforded to Limited Liability Companies. This makes the administration of a Family Limited Partnership-centered plan more difficult than the administration of a LLC-centered plan.
But the Family Limited Partnership is an estate planning tool for achieving asset protection planning, as well as valuation discounts for estate and gift tax purposes. The use of a Family Limited Partnership is an effective, ethical and legal way to minimize the disruption from attacks on your family wealth and to reduce the risks of being completely depleted by a lawsuit.

 

Using a Family Limited Partnership as the center-piece of a properly designed estate plan, you may be able to place a significant portion of your assets beyond the reach of judgment creditors, while still retaining complete control over those protected assets. A Family Limited Partnership is able to deflect judgment creditors away from the assets of the partnership. Under current state laws, creditors are only able to obtain a “charging order” against the partnership interest of the debtor partner, but cannot take the assets of the partnership to satisfy the personal debt of the partner.

 

The Family Limited Partnership allows a family member to exercise complete control over a business or investment activity while passing the ownership and income to other family members. It supports and encourages the retention of control of special family assets, such as businesses, investments, farms and other real estate, and inherited property.

 

In addition, the Family Limited Partnership provides gift and estate tax reductions of the partnership interests based on valuation discounts applicable to their partnership interests. The value of the partnership interest after applying valuation discounts is the amount that is subject to gift and estate taxes, not the value of the assets that are owned by the Family Limited Partnership.


DOMESTIC ASSET PROTECTION TRUSTS (DAPTs), including Tennessee Investment Services Trusts and Mississippi Qualified Disposition Trusts

A Domestic Asset Protection Trust is a trust whose assets may be protected from the claims of creditors of the trust beneficiaries. In other words, a Domestic Asset Protection Trust is a trust to which you can transfer assets that may be protected from creditors.

 

In order to establish a Domestic Asset Protection Trust, the grantor of the trust cannot be the trustee, some of the trust assets must be located in the jurisdiction under which the trust is established and all of the distributions to the grantor must be made in the sole discretion of the trustee. The trustee of a Domestic Asset Protection Trust must be located in the state that permits this type of trust and the grantor cannot demand any distribution from the trust.

 

In the past, the most commonly used jurisdictions were Delaware and Alaska. However, the Tennessee Investment Services Act of 2007 (the Act) now permits the creation of self-funded asset protection trusts in Tennessee. In order to comply with the Act the grantor of the irrevocable trust must (among other things) appoint a Trustee who must be an individual resident of Tennessee or a corporate trustee authorized by Tennessee law to act as a trustee and expressly incorporate Tennessee law to govern the trust.

 

More recently, Mississippi passed the Mississippi Qualified Disposition in Trust Act (the Mississippi Act), which closely mirrors the Tennessee Act and also allows for the creation of self-funded asset protection trusts in Mississippi. To qualify under the Mississippi Act, not only must the trustee be an individual resident of Mississippi or a corporate trustee authorized by Mississippi law to act as a trustee and expressly incorporate Mississippi law to govern the trust, but the grantor must also pay the premiums for and be a named insured on a general liability insurance policy of at least $1,000,000.


OFF-SHORE ASSET PROTECTION TRUSTS

In an off-shore trust, assets are transferred to a trust either originally established under or subsequently made subject to the laws of a foreign jurisdiction that does not automatically honor judgments granted outside of its own courts, such as those granted within the United States. The most common foreign jurisdictions in which to establish an Off-Shore Asset Protection Trust are Nevis and the Cook Islands.

 

The grantor may be the trustee, but there is always another trustee who is governed by the laws of the foreign jurisdiction. It is possible for the assets of an Off-Shore Asset Protection Trust to remain in the United States under the grantor’s control and operate as a domestic trust until claims are made. If any claims against the trust are threatened, the foreign trustee would exercise its power to fire the trustee located in the United States and take control of the assets, so that they are no longer subject to the control of the United States courts.