The primary criteria of asset protection as one of the cornerstones of asset planning, is to protect the existing assets against the claims of a third person.
Primus Wealth’s clients enjoy both the very strong domestic asset protection regime, which does not provide access for creditors to seize the trust assets, and the vast investment protection treaty network of Hungary the EU and the US.
In the era of FATCA, CRS and the EU’s Beneficial Ownership Register, when the pursuit for transparency prevails, asset protection and privacy protection go hand in hand. Primus Wealth can provide the maximum legal protection and one of the best tax benefits system for you, moreover we can also help you get your privacy back whilst maintaining strong control over the assets.
Asset protection professionals regularly use about two dozen different structures to protect clients’ assets on a world-wide basis. The structure we use depends on how well a client would like to protect his/her assets, how aggressive the creditors will be, and the specific assets that need to be protected. When we examined which structures we use most often, we came up with the following three pillars of asset protection.
1. LLC
The limited liability company is a simple and easy to implement ease of use structure. Asset transfer as capital is tax exempt and there is complete freedom to retain control over the assets and to revert the assets back to the client. LLCs work well when we are setting up the asset protection structure ahead of any possible issues the client may face. LLCs are used to protect liquid assets, rental real estate, business interests, collectibles, and intellectual property. Given the low cost and the low effort of set up, the LLC provides the best bang for buck. Nevertheless, it does not provide the highest level of protection, as the corporate veil of an LLC may be pierced under the right circumstances. A higher level of protection requires a combination of LLC and trust.
It usually makes little difference where an LLC is organized. A more important factor is how it is structured. There are many nuances to correctly structuring an LLC for asset protection, including asset protection-tailored distribution clauses, buy out rights, and management succession issues. Primus Wealth regularly uses LLCs under the trusts we manage as further asset protection vehicles.
2. Trust
The EU trust registered in Hungary is an excellent asset protection vehicle, as none of the creditors of the settlor, trustee and beneficiary may have access to the trust assets. Neither Luxembourg nor Hungary recognize US civil court judgments. The creditor of the settlor MUST take legal action in the EU against the settlor and the trustee and MUST prove that the transfer of the trust asset was a fraudulent one. The burden of proof lays on the creditor, and the fraudulent transfer must be proven beyond reasonable doubt.
Highlights of the EU trust:
- Absolute privacy (in the case of hybrid trust)
- Full asset protection
- Strong control
- Flexibility
- Strict fiduciary duties
- The trustee is subject to a duty of confidence
- Licensed trustee
- Several types of trust
- Unlimited duration (in the case of hybrid trust)
- Possible to set up an irrevocable trust
- Protector
- Asset tracing
- Power to revoke the trustee at any time
- Power to change the governing law at any time
- Tax free asset transfer
- Private trust financial income is tax exempt
- Tax & legal compliance
- Segregated trust assets
- Segregated bank and security accounts for every trust
- No publicly available information about the settlors and beneficiaries
- Monthly financial reports to the clients
Highlights of the US trust:
- No registration requirements
- No automatic exchange of banking information (CRS) therefore enjoy banking privacy
- 0% U.S. federal tax rate (on non-U.S. source income) for non-residents
- 0% state taxes in Delaware, Wyoming, South Dakota and Nevada
- No BO (Beneficial Owner) Registry in America
- Absolute privacy
- Reduced compliance burden
- Strong asset protection
- Flexibility
- Strict fiduciary duties
- The trustee is subject to a duty of confidence
- Chartered trustee
- Several types of trust
- Unlimited duration (in Delaware and South Dakota)
- Possible to set up an irrevocable trust
- The trustee is a US chartered trust company
- Protector
- Asset tracing
- Power to change the governing law at any time
- Tax free asset transfer
- Tax & legal compliance
- Segregated trust assets
- Segregated bank and security accounts for every trust
- No publicly available information about the settlors and beneficiaries
- Monthly financial reports to the client
An irrevocable trust is a more complex structure than an LLC. There are still no tax consequences, if structured correctly, and some degree of control may be retained by our client with the proper trust drafting. With the trust it is not as easy to move assets in and out, and irrevocable trusts are better suited for assets like a personal residence or an investment account that the client does not need access to. The irrevocable trust will accomplish a higher level of protection than an LLC.
There are different types of irrevocable trusts and different methods of funding these trusts. Trusts must be customized for each client based on their needs and circumstances. All good asset protection trusts are funded for the benefit of a third-party (often, the children of the settlor), and includes the use of a trust protector.
The trust has created an opportunity for people taking a high business risk, such as lawyers liable with their entire property, or senior executives to secure property for the beneficiaries by putting some of it into a trust.
In addition to these two highlighted interest groups, trusts may be an alternative for a prenuptial contract too, as the items placed into trust are separated from the owned property of the settlor and the beneficiaries and do not qualify as joint property. By using a carefully structured trust before marriage, the parties can prevent many unnecessary disputes and long-lasting litigation should they get a divorce.
Furthermore, a trust is a good means against fraudsters and swindlers. The mere fact that the managed assets are in the ownership of the trustee and the identity of the beneficiaries is not publicly known represents a sort of security, a firewall for the beneficiaries, who can enjoy the managed assets and their benefits without being exposed to the curious eyes or, in the worst case, the attacks of the external world.
Learn how you can protect your assets before marriage with a prenuptial trust.
Prior to marriage, it is important to consider how our personal assets can be protected in case of a divorce. A frequently used method to achieve this is a prenuptial agreement. However, there are multiple problems associated with prenuptial agreements:
- A prenuptial agreement is a consensual agreement between a couple before marriage. For a person about to marry someone, asking for a prenuptial agreement is often difficult; it may lead to the marriage being cancelled.
- A prenuptial agreement requires full financial disclosure. Very few couples are willing to share every aspect of their financial affairs with each other.
- A prenuptial agreement, if wrongly prepared, can be invalidated by a court upon application by a party in a divorce.
- Even if a prenuptial agreement is correctly drafted, there is no guarantee that it will be enforced. The aggrieved party may claim that the prenuptial agreement was not fair: it was signed under duress, under influence or there was no disclosure or representation.
Marriage can be compatible with asset protection!
A future spouse acting as settlor is able to create an EU registered trust in Hungary. By doing so, an irrevocable trust can be created, which ensures protection from creditors, claimants of lawsuits and potential future ex-spouses. The beneficiary of the trust may be freely selected by the settlor; this may even be the settlor alone.
An EU trust in Hungary is an asset protection method that also does not harm the relationship of couples about to get married. It may be set up by the settlor without the knowledge of his or her spouse.
3. Non-domestic structure
A non-domestic structure including the movement of funds out of the country of residence, is the best asset protection structure. These structures very rarely get challenged and when challenged have an exceedingly high likelihood of success. The non-domestic structures carry tax reporting obligations, and like irrevocable trusts, require sophisticated ways of retaining control and access to the assets. The use of non-domestic structures should be limited to assets that are liquid in nature or can be easily converted to liquid form.
4. Foundations
The Asset Management Foundation is an excellent asset and privacy protection vehicle, as none of the creditors of the founder or the beneficiary may have access to the assets and the Foundation Board is considered as BO, instead of the founder and beneficiaries. This provides a unique opportunity for the UHNW families to protect their privacy whilst they keep control over the assets.
The Asset Management Foundation (AMF) is a legal person without owners, where the Foundation Board must manage the AMF’s assets. The AMF Act compels the Foundation Board to PRESERVE and PROTECT the AMF’s assets exclusively for the benefit of the beneficiary. The interest of the beneficiaries is protected by a Supervisory Board, an Auditor and a Protector. The administration of the foundation is provided by Primus Wealth as administrator. Under our umbrella, neither the founder nor the beneficiaries are considered as beneficial owners. Therefore, they are not subject to CRS reporting.
Highlights of the asset management foundation:
- No dual ownership concept
- Full access to the financial markets
- Easy bank account opening process
- Easy banking
- Full privacy
- Not subject to CRS reporting
- Under the protection of EU Law
- All the DTT are applicable
- Under the umbrella of the foreign investment protection treaty network
- Possible to appoint a protector (corporate protector as well)
- Tax benefits, financial type of incomes are tax exempt
- Tax compliance
- Tax free asset transfer
- Segregated bank and security accounts
- No publicly available information about the founder and beneficiaries
