Asset protection basics: it’s all about ownership.

By Tresp, Day & Associates · January 14, 2020

This entry in our fundamentals series covers the idea underneath all the others. Once you understand ownership, the logic of trusts, entities, and the whole field falls into place.

Creditors reach what you own

A judgment creditor can go after your property, bank accounts, real estate, investments, because you own it. Owning an asset outright, in your own name, is the most exposed position there is. That’s the problem asset protection solves.

Separating ownership from benefit

The key move is to separate legal ownership from beneficial enjoyment. When you transfer assets into a properly structured irrevocable trust, a trustee holds legal title for the beneficiaries. You may still benefit, through discretionary distributions, but because you no longer legally own the assets, a future personal creditor generally can’t reach them. Entities work on a related principle, holding assets a step removed from you.

Why control matters

The catch is control. The more control you retain over “transferred” assets, the more a court may treat them as still yours. Effective structures require giving up a degree of direct control, which is why they must be designed carefully to protect assets while preserving appropriate benefit. Tresp, Day & Associates strikes that balance for clients every day.

Continue the series: types of structures and fraudulent conveyance.