How to Protect Your Assets in Trust

Donald Hess, a wealthy Swiss businessman, saw his $200 million estate placed at risk when his wife of over twenty years sued for divorce. Despite having a pre-marital agreement that limited his wife’s possible recovery, Hess had concerns regarding a possible court decision falling outside the bounds of the contract. His fear was not unfounded. The list of Top 25 huge divorce settlements includes CEOs, hedge-fund managers, and well-known actors and entertainers, such as Madonna and Mel Gibson. Mel Gibson’s divorce left him nearly penniless when a court ordered him to pay almost $400 million to his former spouse. Fortunately for Hess, his ex-wife was not able to recover anything beyond the pre-settled amount. Hess had previously transferred his assets into an offshore trust. The only aspect of this action examined by the court was whether Hess’s transfer caused him to become insolvent.

There are a number of scenarios in which placing assets into a trust account can prevent creditors from reaching those assets. Individuals that run private businesses as the sole owner may face tremendous risk from creditors. In the event these individuals are privately sued, creditors may invade the businesses’ equity and take shares to recover on a judgment. This may leave a previously family-owned operation with new partners seeking to liquidate assets as quickly as possible. Forming an LLC or a partnership are two traditional means of protecting company assets from creditors. These tend only to postpone an eventual reckoning, as creditors may be able to intercept funds directed to the debtor-partner.

The self-settled asset protection trust is a relatively new addition to the number of options available as means of creditor protection. Seventeen states have authorized their use and, after establishment, these trusts eventually become impenetrable to creditors. For even more protection, offshore trusts afford an even greater degree of separation from court decrees as the United States enjoys no jurisdictional control of these trusts. With a number of options available, proper asset protection planning should consider and implement these various strategies.

See Alexander A. Bove, Jr., Cracks in Your Assets?, Private Wealth, March 21, 2017.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.