When I tell people that I practise Asset Protection Law, they usually ask me “what is that”. So I thought I would write a simplified explanation of what asset protection is.
Asset Protection is simply using legal strategies to protect your assets and wealth from creditors. If established correctly, asset protection strategies can protect your assets from seizure or sale by judgment creditors, tax authorities, or other claimants.
There are two types of asset protection strategies. One is using a domestic asset protection entity or entities such as a trust or a corporation and the other is using a foreign or offshore asset protection entity. There are pros and cons to each.
Using a domestic strategy is cheaper and easier to set up than an offshore one. The con to using a domestic strategy is that whatever entity you set up here in Canada will be subject to the jurisdiction of the Canadian courts and could be set aside. Foreign offshore entities, on the other hand, are not subject to the jurisdiction of Canadian courts and any judgements obtained against you in a Canadian court will be more difficult to enforce in the foreign courts. Many countries, for example, will not enforce another country’s revenue or penal debts. So if the Canada Revenue Agency has a judgement against you here in Canada, and all of your assets are located in an asset protection friendly jurisdiction, well the CRA can go pound sand because they won’t be able to touch your assets in the foreign country and you can sit back and enjoy your lychee martini (or whatever your choice of beverage is) with some semblance of peace.
Asset protection can be simple or complex. A simple asset protection strategy used by professionals who may be targets of lawsuits is to put their house and other assets in their spouse’s name. That way if a creditor gets a judgment against you, there is nothing for the creditor to collect. Lawyers call this making yourself “judgement proof”.
Generally, you must put your asset protection strategy into place BEFORE you have creditors. If you don’t, then any transfer of your assets could set aside as a fraudulent conveyance.
Establishing and implementing an asset protection strategy requires input from a range of skilled professionals including, attorneys, financial planners, accountants, insurance brokers, and tax professionals.
The starting point is to think about what assets you want to protect, who you want to protect the assets from, and where are your assets going to be located. Then book a consultation with a professional who is skilled in asset protection.