Levels Of North Carolina Asset Protection Planning: Advanced Asset Protection Planning

Jackie Bedard
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Attorney, Author, and Founder of Carolina Family Estate Planning

In establishing a well-designed Asset Protection Plan, once we have reviewed your current assets and degree of exposure; implemented Foundational Asset Protection Planning and Moderate Asset Protection Planning techniques, the next step for additional asset protection usually involves the introduction of establishing trusts in other states or countries that have more favorable asset protection laws.

For those seeking more protection and/or access and control, Advanced Asset Protection strategies may include:

Domestic Asset Protection Trusts

At least 17 states, not including North Carolina, have laws allowing for the creation of self-settled “spendthrift” trusts, commonly known as Domestic Asset Protection Trusts. As a resident of North Carolina, you can establish a Domestic Asset Protection Trust in another state, allowing you to pick a state with more favorable asset protection laws.

A Domestic Asset Protection Trust must include an Independent Trustee, such as a Corporate Trustee, who has absolute, total discretion over making distributions from the trust to the beneficiaries—including you as the person who established the trust.

In 2015, North Carolina adopted the Uniform Voidable Transactions Act (UVTA) which raised questions as to whether a Domestic Asset Protection Trust created by a North Carolina resident in another state would still protect the individual’s North Carolina assets. When such laws are drafted, they are generally accompanied by comments by the drafters. The UVTA comments suggest that such assets would not be protected. However, most asset protection lawyers believe that the opinion stated in the comment is incorrect. Currently, this is a “gray area” of law that will likely will not be settled until a court case arises forcing a court to render an opinion on the matter.

Regardless of how case law plays out, Domestic Asset Protection Trusts are still considered to be a strong asset protection tool for North Carolina residents due to the strong deterrent factors—that is their ability to deter the risk of frivolous lawsuits or unreasonable settlement demands.

Consider this example:

  1. A plaintiff (e.g., a potentially injured party) must bring a lawsuit against you, which includes incurring the time and legal fees to do so.
  2. The plaintiff must win the lawsuit against you resulting in a judgment against you (i.e., the amount that you are ordered to pay the plaintiff).
  3. Potentially, you may appeal the lawsuit or the unreasonableness of the judgment awarded.
  4. Assuming your appeal is unsuccessful, the plaintiff must then seek to collect on the judgment. This usually first involves going after any available liability insurance policy limits and unprotected assets.
  5. If the liability insurance policy limits and unprotected assets are insufficient to pay the entire judgment amount, the plaintiff may then try to challenge “protected” assets, such as those in an Asset Protection Trust. This involves starting a new lawsuit requesting a court to pierce the Asset Protection Trust on grounds such as fraudulent conveyance or similar. This can be an extremely difficult case to win.
  6. The plaintiff must then win this second lawsuit allowing them to pierce the Asset Protection Trust and pursue the trust assets to satisfy the judgment that they obtained from the first lawsuit.

The end result is that if a plaintiff is considering suing you, when they see that you have your assets under tight-wraps in various asset protection trusts and legal entities, they are going to be far more likely to reach a reasonable settlement that is likely within the limits of your liability insurance coverage (or they will go away entirely if it was a frivolous claim to begin with).

Offshore Asset Protection Trusts

The concept with Offshore Asset Protection Trusts is similar to that of Domestic Asset Protection Trusts. However, because Domestic Asset Trusts are created in the United States, they are still subject to U.S. laws. Thus, while it might be expensive and cumbersome to bring a lawsuit to attempt to pierce a Domestic Asset Protection Trust, it can be done (though whether it will be successful or not is another issue).

An Offshore Asset Protection Trust takes this concept one step further. Rather than choosing another state with favorable asset protection laws, you choose another country with favorable asset protection laws. If a plaintiff were to win a lawsuit against you, in order to collect on the judgment, they would have to bring a lawsuit in another country which has totally different asset protection laws that severely limit the plaintiff’s ability to reach the assets in the Offshore Asset Protection Trust.

Are You a Sitting Target?

Unfortunately, some individuals have a higher likelihood of being sued due to the nature of their professional or financial stature—in other words, those that have something to lose.

In our years of experience working with thousands of clients in the Wake County area, we find that asset protection planning is particularly important if any of the following apply:

  • You own a home and have an estimated net worth of $1M or more;
  • You own vacation property;
  • You own rental property;
  • You are high income-earning professionals;
  • You are high income-earning business owners;
  • You own a business with significant value.

Don’t leave yourself or your loved ones stuck dealing with the financial aftermath that a lawsuit, medical bills or long-term care costs, or unexpected tragedy can bring to your family. Contact Carolina Family Estate Planning today at (919) 443-3035 or fill out our online form to speak with someone about registering for a seminar or a Vision Meeting. You may also wish request a free copy Jackie Bedard’s book, Estate Planning Pitfalls: The Twelve Most Common Threats To Your Estate & Your Family’s Future.