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FIRE: Asset Protection Strategies during Financial Independence

In the "land of the lawsuit", it's more important than ever to make sure you have an adequate asset protection strategy in place while you enjoy financial freedom.

Asset protection can be thought of as a legal way to shield your assets from creditors in the event of a lawsuit/bankruptcy/divorce/etc.

As your FI/FIRE strategy is heavily reliant on income from accumulated assets, you should establish an asset protection strategy to ensure that this money cannot be (easily) taken.

As there are no available/reliable asset protection vehicles in the United States (trusts & LLCs will not protect your assets), we are forced to utilize offshore strategies.

So that leads us to our available options.

Offshore Trusts & Offshore LLCs

Where offshore?

Belize or Nevis.

If you're like me, you are completely oblivious to any details about these countries but they share one common trait: excellent asset protection from creditors.

What vehicle?

There are a number of complicated ways to accomplish protections via a trust, but I recommend the use of an offshore LLC.

Per our helpful friends at https://offshorecorporation.com/nevis-llc/, the advantages of an offshore LLC in Nevis are:

  1. Laws in Nevis stated that a creditor must post a $100,000 bond to enforce a judgment against one’s interest in a Nevis LLC. That is, it stated that a creditor must do so before filing legal documents. As of 2019, the Nevis High Court can require a bond for any amount, including well over $100,000.

  2. The statute of limitations for fraudulent transfer is only two years. For example, today you transfer assets into a Nevis LLC. Two years later, if someone challenges that transfer and attempts the seize the assets the courts will decline hearing the case.

  3. A creditor needs to show beyond a reasonable doubt that the member transferred assets to the company in order to delay creditors.

  4. Asset protection preventing a creditor from seizing the company or the assets inside is available to single-member as well as multi-member LLCs.

  5. Any charging orders against a member’s interest in the company fall away after three years and are not renewable.

  6. A manager can have 100% control of the company.

  7. The manager of the LLC does not need to have any ownership. However, the manager can control the entire company and all of its assets.

  8. The company can have as many members as one desires.

  9. Any person or company can own the entity.

  10. Nevis does not impose corporate tax, income tax, withholding tax, stamp tax, asset tax, exchange controls or other fees or taxes on assets or income originating outside of Nevis.

  11. Members of LLCs may be individuals or business entities of any nationality or domicile.

  12. LLC members may amend their Articles of Organization. They can merge, or consolidate with other domestic or foreign LLCs or other business entities.

  13. Members of the offshore company may assign their interests to other parties unless restricted otherwise. Nevis permits single-member LLCs.

  14. Management of the companies may be by the members or by managers designated by the members.

  15. There are no stock limitations and can issue preferred interests analogous to preferred stock of corporations.

  16. You can set it up within 24 hours for a low initial cost and low annual fees.

A lot of advantages, right?

An important note here is that you will not receive any "tax benefits" from this structure. By that I mean you will still pay the same US taxes on your earnings from the LLC proportionally to your ownership.

Tax strategies for reduction via offshore vehicles are incredibly difficult for US citizens (for better or worse) and will be discussed in a different article.

How to set up?

I make a point to keep lawyers out of my business as much as possible but this is one of the few times where it would be money well spent.

There is a risk involved with constructing this vehicle and you will want to make sure that 1) it actually provides the protection desired and 2) all parties involved are completely legitimate.

Never just send your money to some website that claims it will open this type of account for you.

It is very likely you will want to structure in a particular format:

How it's technically owned, who is technically owned by, what assets the institution owns, what charging order is established, who is managing the LLC's daily operations, which bank is the LLC using, etc (most are established in the LLC's operating agreement which can, of course, be amended over time as situations change.

How much will it cost to set it up/obtain protection?

Per https://www.offshorelivingletter.com/when-why-how-to-set-up-offshore-llc/, it will likely cost between $850 - $5,000 to get the LLC set up.

Costs will vary based on how much you can do yourself, how much the legal services cost (you will want a lawyer who has experience in this very niche area), and how much management/banking fees are.

Final thoughts

For those of us who have reached or will one day reach FI, this vehicle will give you peace of mind that you are protected.

You will obviously not want to tie all of your assets up in the offshore vehicle in the event legal proceedings temporarily freeze your ability to take distributions/receive income from the LLC, but a sizeable amount of money can be safely placed into this entity.

The entities themself can invest into the spectrum of investments (risk-free to high-risk) based entirely on your objectives for this protected cash.

Again, all earnings will be taxed as personal income in the US.

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