In Utah, allowable asset protection techniques are readily available. You’ve worked hard for your money. In fact, until that money is invested and earning interest, you’ve gained your “nest egg” by trading the hours, days, weeks, and years of your life for that money. (Go read the book “Your Money or Your Life” by Joe Dominguez and Vicki Robin. Great read.)
So that estate of yours — all your collected wealth — is actually a huge chunk of your time on this planet. Do you want to lose it to mistakes or conscience-deficient people? We didn’t think so.
What follows are the leading techniques for guarding those assets. But first, an important definition:
Creditors, fraudsters, and the government can get to anything you have “Ownership” of. In the law Ownership is enjoyment, possession, and control over the asset. So if you’re willing to consider giving up elements of legal ownership, you can block attempts to grab your wealth. The rule of thumb is: If You Can Get to It, Your Adversary Can Get to It.
Now, here are the techniques available:
- Outright Gift. If you give an asset outright to someone else, then you no longer have enjoyment, possession, or control over it. But you also have to be at peace with the thought of giving up the asset. Additionally, even though your own creditors can’t get to the asset now, the creditors of your recipient can do so. You’re just trading one risk for another. However, an added benefit is that the gift can get the value of an appreciating asset (i.e., one that keeps gaining value) out of your taxable estate and into the estate of someone in a lower tax bracket, for both income taxes and transfer taxes (i.e., the estate and gift tax regimes). The asset will then continue growing in value with less potential tax liability against it.
- Investing in Permanent Investments. The prime example of this is a single premium annuity. The money you pay to fund it is well and truly gone. You have no enjoyment, possession, or control in it. However, you would have income from it periodically, and because you would have enjoyment, possession, and control over those annuity stipends, any creditor of yours would also be able to get to it. Still, these vehicles do protect the value used to buy them. Just be sure that any annuity or other permanent investment vehicle is managed by a reputable company that isn’t likely to collapse or breach their duty.
- Funding Irrevocable Trusts. An irrevocable trust is an essentially permanent vehicle for holding assets. The Trustor/Grantor gets the trust drafted, then funds it with one or more assets of value. That funding transfer is permanent! The Trustor/Grantor is giving up all possession and control of the asset(s), and will either retain only a specific, limited enjoyment interest in the form of an income interest in the gains of the asset in trust, or no such enjoyment interest at all. If that individual does retain an income interest, because they can get to it, so can creditors. For example, if a judicial judgment (through a lawsuit) is rendered against the Trustor/Grantor, then the winner can attach that income interest, even if they can’t touch the principal of the asset itself. See the more detailed descriptions of the types of irrevocable trusts listed on other pages on this site.
- Insurances. This tried and true technique doesn’t actually protect your asset, it simply transfers the risk of loss to the insurer. If you lose the insured asset to a lawsuit or fraud, a properly structured insurance policy will then reimburse you for covered loss, less any deductible or co-pay amount. There are commercial insurances for businesses and professions, liability insurances against lawsuits, health insurances against catastrophic medical expenses, and life insurances against death of a loved one or critical business partner. In our opinion, everyone should have ample insurance coverage with well-rated companies, even if they’ve implemented one or more of the above-described techniques.