With greater assets comes increased exposure to lawsuits, business liabilities, and predatory claims for high-net-worth individuals. Success can make high-earners and wealthy families a target for their assets.

Asset protection represents preemptive planning to ensure that financial gains through decades of work aren't vulnerable to unnecessary risks. By utilizing asset protection in financial planning,  key strategies such as legal structures, specialized trusts, strategic insurance coverage, and international planning options will help to mitigate risk.

High-net-worth individuals face a greater risk environment that extends beyond typical financial concerns. These threats include personal liability lawsuits from property visitors or accidents, professional malpractice claims for practitioners, defamation suits targeting visible public figures, business disputes from partners or customers, investment failures leading to creditor claims, and divorce proceedings that can divide accumulated wealth.

For example, consider a successful real estate investor who owns multiple properties in his personal name. When a tenant suffers a serious injury due to alleged maintenance negligence, the lawsuit threatens not just the property involved but the investor's entire personal fortune, including assets completely unrelated to the real estate business.

Risk assessment should be proactive rather than reactive. Many wealthy individuals may not recognize their vulnerability until facing an actual claim, where then protection options become limited or ineffective.

The strategic use of legal entities creates separation between personal and business assets. Limited Liability Companies (LLCs), for example, provide excellent protection for real estate holdings, business operations, and investment portfolios. Instead of owning investment properties directly, placing each in its own LLC compartmentalizes risk. If one property faces liability issues, other properties and personal assets remain protected.

Family Limited Partnerships (FLPs) offer another protective structure, particularly for multigenerational wealth. These entities allow senior family members to maintain control while transferring ownership interests to heirs, simultaneously providing creditor protection. Assets within properly structured FLPs receive protection from personal creditors of limited partners.

However, these protections depend entirely on proper implementation and maintenance. The strongest structures may become ineffective without routine compliance maintenance.

Trusts represent asset protection tools available when properly structured. Domestic Asset Protection Trusts (DAPTs), available in states like Nevada, Delaware, and South Dakota, allow individuals to create irrevocable trusts while retaining some beneficial interest, and they shield assets from future creditors after specified waiting periods.

Irrevocable trusts provide even stronger protection because assets transferred are no longer legally yours. Though this requires relinquishing control, the protection provided can be nearly absolute when structured properly. These vehicles prove particularly valuable for protecting assets intended for future generations.

Strategic insurance coverage provides a first layer of protection that complements legal structures. Umbrella liability policies, typically starting at $1 million in coverage but often expanded to $5-10 million for high-net-worth individuals, extend protection beyond standard homeowner's and auto policies at relatively modest premiums.

While insurance has coverage limits and exclusions, it represents the most cost-effective initial barrier against claims. The ideal strategy layers appropriate insurance with legal structures and trusts to create multiple protective shields around wealth.

For substantial wealth, international diversification through offshore planning may provide additional protection. Jurisdictions like the Cayman Islands, Cook Islands, and certain Swiss cantons offer specialized legal frameworks designed to protect assets from creditors through strong privacy laws and favorable legal precedents.

However, offshore planning demands strict compliance with U.S. reporting requirements, including Foreign Bank Account Reports (FBARs) and Foreign Account Tax Compliance Act (FATCA) disclosures if applicable. Non-compliance can trigger severe penalties that far outweigh any protection benefits.

Asset protection ultimately safeguards more than financial statements. This preserves legacy, ensures business continuity, and provides family security. The peace of mind that comes from knowing a life's work stands protected against unexpected threats may be the greatest benefit of all.

Most importantly though, asset planning must happen before problems arise. The most sophisticated strategies become ineffective or potentially fraudulent when implemented reactively.

Written by: Taylor Bushey

ProCore Advisors is a Registered Investment Advisor in the states of California, Oregon, and Texas. Reference to registration does not imply any particular level of qualification or skill. Investment advisory services available only in jurisdictions where ProCore Advisors is appropriately registered. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities.