Asset Protection Strategies for High-Net-Worth Individuals

Asset protection strategies can form a legal and financial separation between professional and personal assets. This can limit your personal liability should a legal or creditor claim be made against your business, rental property, or professional practice. Asset protection strategies can also be designed to safeguard assets during a divorce and can notably enhance your financial privacy, obscuring public records and making you less vulnerable to litigation in the first place.

Form a business entity

AAFCPAs encourages clients in professions with a higher risk of litigation or with rental real estate to consider creating a separate legal entity (i.e., a limited liability company, a limited partnership, or an S corporation) to protect their personal assets from lawsuit. This is particularly critical for real estate investors who own rental property and need to limit personal liability should an accident occur on the property. With the right business structure in place, any legal claims may be limited to that property. This strategy involves planning as well as ongoing administration, such as maintaining separate books and records and staying current with state registration fees and tax filings. AAFCPAs consults with clients to determine the right type of entity for their circumstances while weighing the administrative burden and the cost of implementation with any benefits realized.

Place assets in a trust

An irrevocable trust is ideal for those looking for both privacy and asset protection along with tax minimization for their estate. Transferring assets into an irrevocable trust can remove them from your personal estate and, since those assets are held in trust under the charge of a trustee, creditors cannot easily access them. Any independent party can be appointed as a trustee including a family friend or relative, a trusted individual, or an independent institution, such as a banking or trust company. Because any property or asset in that trust is registered under the trust name instead of the individual, the grantor gains both asset protection and privacy. Keep in mind, though, that the grantor relinquishes control of assets once placed in an irrevocable trust. AAFCPAs works with clients to carefully consider which assets are placed in this type of trust, as it can be very difficult or impossible to make any changes once the trust is established. As with all complex structures, it is important to weigh the potential administrative cost and loss of control with any benefits you may receive.

Consider other options

An asset protection trust is another type of irrevocable trust that is specifically worded to protect the trust’s assets from creditors while allowing the trust’s settlor to be a discretionary beneficiary of the trust and thus retain access to the assets. A domestic asset protection trust is perhaps the easiest to set up and maintain but is not permitted in every state and there are additional restrictions as to who can be a trustee and what type of assets can be transferred. Domestic asset protection trusts are currently only permitted under the laws of Alaska, Delaware, Hawaii, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, and Wyoming.  Finally, a prenuptial or postnuptial agreement can safeguard assets and any stakes in a family trust from a spouse.

How we help

AAFCPAs develops strategies to optimize tax, financial, and legal protections based on your specific profession, family situation, and risk factors. We work with clients to identify areas of exposure and to explore how various strategies might affect your financial goals.

If you have questions, please contact Camila Gonzalez Whalen, CPA, Director, Tax at 774.512.9078 or, Joshua England, LLM, Esq., Partner and Tax Attorney at 774.512.4109 or—or your AAFCPAs partner.

About the Authors

Camila is a leader in AAFCPAs’ Private Client Services practice, working extensively with high-net-worth individuals, their families, and closely held businesses. This includes providing tax planning & compliance solutions to business owners and entrepreneurs, as well as estates, trusts, and private foundations. Camila provides a critical analysis of the tax planning links between the business and its owners, which illuminates opportunities to reduce overall taxes. From the business perspective, she considers how to reduce taxes and increase available cash, including entity selection, accelerated tax depreciation when acquiring new real estate or capital improvements, tax credits and incentives or accounting method planning. For personal tax planning, she identifies ways to maximize available tax deductions, reviews the tax efficiency of investments, and considers estate planning opportunities as well as trusts and other wealth preservation vehicles, that insulate clients' assets and protect specific financial goals.
Joshua England, Tax Attorney
Josh is a tax strategist with extensive expertise advising high-net-worth individuals, nonprofits, and business owners and investors on effective strategies to ensure tax efficiency, asset protection, well-executed succession plans, and wealth preservation. He has been practicing law since 2000 and focuses his practice on the areas of wealth transfer planning, fiduciary and individual taxation, business structuring to maximize tax efficiency, and advising tax-exempt organizations, foundations and charitable donors.