What are the legit crypto asset protection strategies? Since the release of Bitcoin in 2009, a lot of different crypto coins came into existence and all have created a buzz in the financial market with its growth potential and opportunities offered.
The digital currencies come with a lot of useful traits which include safe and secure transactions, immutable records, and a faster and cheaper way to make P2P payments without the need of any intermediaries.
The others got inspired and took cue from them and also started investing their hard earned money into it to make future profits.
However, there are some risks involved in crypto investment and trading and these are not limited to the conventional ones such as the volatility of the market, possibilities of technical glitches, and hacking of accounts.
And, even the miners contribute to the authenticity of transactions and safety of the network.
However, just like any other asset types, crypto assets too need some additional protection from legal claims, lawsuits, and other types of threats especially from the judgment creditors and the courts if you are in debt.
This article typically deals with those asset protection strategies that you may choose to safeguard your crypto.
What are the Legit Crypto Asset Protection Strategies?
The investors feel that the volatile nature of the crypto assets as well as their illiquidity is quite exciting.
Well, true they are, but along with that it is these significant aspects of crypto that makes it so very difficult to protect them.
It is a common trend among the individuals of high net worth to diversify their investment portfolio and for that they now turn to a variety of crypto coins.
More and more people are following this trend which has increased the number of crypto asset holders all over the world significantly.
However, just as the number of these holders increases, another significant concern also builds up at the same time.
Now, these assets should be protected from external threats, especially legal threats.
Therefore, it is needless to say that anyone who has amassed wealth in any form, including crypto, should protect their assets from potential legal liabilities.
This is especially needed by those business owners and professionals who work in a field that involves high risk.
That is why a bevy of wealth management structures have come up over the years that provide all types of protection to your assets, including crypto.
These asset protection solutions are carefully designed so that they can adapt to the ever-changing needs of the crypto investors.
Ideally, most people believe that the best way to protect their crypto is through offshore asset protection strategies, though there are lots of them who think otherwise.
However, these solutions are more favored by more people due to a few specific reasons which include and are not limited to:
- Their impenetrable and more effective asset protection strategies
- More provisions offered by them to prevent the crypto assets and others from being seized in a legal claim and
- Their complete compliance with Internal Revenue Service, Department of Justice, and Foreign Account Tax Compliance Act or FATCA regulations.
However, this is not the only asset protection strategy to follow for your crypto.
There are lots of other useful and equally good ones that you can choose from depending on your needs, conditions, and preference.
With so many different options available, it may be quite intimidating when it comes to choosing one particular asset protection strategy that will have the right structure, provisions, and jurisdictions according to your needs.
Therefore, it is required to do your own research and know everything about the different options and choose the one that best suits your needs and circumstances.
You will be better off if you are a financial expert and advisor before making your decision.
By now, you already have a fair idea about the importance of selecting the best asset protection strategies for your crypto.
However, here are a few other important things for you to know right from the basics of asset protection which will give you a much clearer idea.
Starting with the basics, asset protection is the strategy or method which can be employed by any individual in order to protect their wealth.
Even the businesses can use an asset protection strategy to prevent threats of lawsuits.
Typically, people use such strategies to prevent the judgment creditors from seizing their assets, and crypto being considered as an asset and not as a currency by the IRS, these strategies also protect your crypto.
However, these strategies only protect your portfolio from such vulnerabilities and do not endorse evading taxes or defraud creditors.
The strategies will simply allow you to use the law in a way to make it work in your favor in protecting your assets from liabilities, lawsuits, and other potential threats, all legally.
All asset protection strategies are legal, provided these are designed correctly.
These strategies have now become the most important tools for any individual to fulfill their financial liabilities as well as protect their investment portfolio.
Though it is commonly believed that the asset protection strategies are meant only for those individuals who work in the fields that involve high liability such as lawyers and physicians, it is not true.
Asset protection strategies are also very helpful for protecting crypto which typically works on blockchain technology that is designed to maintain anonymity of all transactions.
A large number of investors therefore think that these transactions are untraceable and use it.
This is because the entire history of the transaction is available publicly.
It is this transparency that enables one, though not everyone, to trace all crypto transactions all the way back to the original one.
This means that blockchain does not provide the essential protection from the judgment creditors as it advertises.
They, the judgment creditors, and even the court can force a defendant to disclose all necessary and pertinent info regarding their assets and currency, and this includes digital assets like crypto, if they go into debt and are sued.
The crypto wallets can be tracked through the crypto exchanges.
These exchanges are highly likely to cooperate to clear their name.
But, if they are not, they can be subpoenaed to disclose all relevant information about the ownership of the wallet and funds along with the amount of funds deposited into the wallet that is subpoenaed.
Therefore, the virtual currencies are as susceptible to liability threats and seizures by the judgment creditors as any other asset you own.
All these factors indicate that it is very important to protect your crypto via an asset protection strategy, which probably is the only available way to protect your crypto fully.
The Best Strategies
Here are some of the best asset protection strategies to choose from.
Just make sure that you understand the different ways in which these strategies work and the specific benefits that each of them offers before you choose one.
If you want to have complete peace of mind then an offshore protection is probably the best way to add an extra layer of protection to your crypto.
Through these strategies you will not have your crypto protected from the judgment creditors but also from the potential lawsuits that you may face.
Another good asset protection strategy that you may choose to ensure security of your crypto assets is Titanium Trust.
This is a specific strategy that provides solutions that will take offshore trust as well as the traditional domestic trust one step ahead.
Apart from protecting your assets in the US that remain in the US, it offers additional advantages such as dexterity to transfer your assets via a network of bankers, protectors and international trust companies to safeguard your assets from legal threats and when they lose control over the assets.
Domestic asset protection:
If you want to limit the exposure of your crypto assets to legal threats, it is good to choose the domestic asset protection strategy.
Their useful legal structure will separate the ownership of the assets thereby reducing the exposure to legal threats such as lawsuits, financial claims, and others.
In this specific solution the creator of the trust can be the beneficiary.
Offshore Limited Liability Companies:
You may also choose an Offshore Limited Liability Company or LLC if you want to go with a traditional tool to protect your crypto.
These companies typically perform as separate authorized entities, referred to as company veil, from the owners.
This is very useful for businesses to protect their assets from liabilities.
The owners have limited liability based on the amount invested by them in the company.
This means that the claims, if made, against the personal properties of the owner, may be enough to discharge the obligations or debts fully.
Also, the LLC law prevents the assets from being seized by the creditors.
This form of asset protection is considered to be the best because these are not subject to the laws of the United States as is the domestic limited liability company.
Therefore, creditors cannot take the crypto assets from them even if they have a judgment against it.
It is quite difficult for a creditor to get a judgment in an offshore jurisdiction in their favor because most of the offshore companies do not entertain foreign judgments.
Even if a secondary lawsuit is filed overseas to pursue the assets offshore, it involves a huge amount of money and a lot of barriers to overcome.
Perhaps a more feasible way to go ahead with your crypto protection endeavor is to choose a combination of an offshore LLC and an offshore trust.
This is the most followed strategy today since it provides the utmost level of financial privacy available.
Apart from that, such a combination builds multiple layers of security which the judgment creditors find very difficult to penetrate in order to claim for the assets.
Domestic or Offshore Protection
So, you can see that your choice is primarily between a domestic and an offshore protection, and you may be in a dilemma as to which one would be a better choice for you and your crypto protection needs.
Typically, determining whether you should choose a domestic or an offshore protection will rely on several specific factors.
If those factors are considered it will surely help but then the possession of crypto may further complicate the situation.
Therefore, in order to be more knowledgeable and finally make the right decision you should know about the unique traits and limits of each of these two asset protection strategies.
For that, a bit of a comparative study will be very helpful in this regard, and here it is for you.
Right at the outset you will need to understand that when you build your asset protection strategy it will not be the same for every asset.
However, since it is your crypto assets that you particularly want to protect, you can go with the more widely accepted and favored method among the two – the Domestic Asset Protection Trust or DAPT.
It will surely be enough to protect your crypto assets from liability risks and legal claims in particular.
However, at this point, it is also good to know that this strategy, in spite of being popular, is not fully foolproof.
More so, the US laws are particularly designed to protect the creditors.
Both these things mean that your crypto can still be vulnerable to legal consequences if you choose to go with the DAPT.
Then, you will need to consider the statute limits of these types of asset protection strategies, which, needless to say, may vary from one state to another in the US anywhere from 2 to 4 years for your assets to be protected fully.
Add to that, there are a few other disadvantages of the DAPTs, which, however, may vary according to the type of asset in question.
However, a few specific disadvantages that may be common for all types of assets are:
- In case of bankruptcy, the assets need to be with the trusts for ten years for full protection
- Judges can order confiscation of trust assets irrespective of the trust laws and their provisions
- There is little case law to shield people’s assets but a lot of them to provide financial benefit to the legal professionals
- These strategies do not work well for people residing in states that do not offer them and
- The trustee needs to abide by the domestic laws and the judge or face the risk of being held for contempt of court.
Naturally, you should think twice before you finally choose a DAPT.
On the other hand, such things are not applicable to offshore protection since the jurisdiction is different.
These types of asset protection strategies, whether it is for crypto or any other, are perhaps the best because these are supposed to be the strongest vehicle for complete asset protection.
However, you should not hold the misconception like others that the offshore protection strategies are specifically designed to ‘hide’ your assets.
It does not allow one to bypass the inspection of the federal government or avoid paying taxes on your assets. Period.
It simply allows you to make the laws work in your favor as much as possible.
Remember, even the offshore trusts in fact need to abide by the United States Department of Justice Offshore Compliance Initiative.
This means that it has to follow the guidelines and enforce compliance with the tax laws and necessary disclosures for the US investors.
Still, an offshore asset protection strategy is also quite a useful one for business owners as well as those professionals who work in a high-risk field just as it is for any individual.
And, there are lots of reasons to say so. Though these may vary depending on the jurisdictions, some of the common reasons are:
- The legal system of the offshore trusts are usually based on common English law followed by the legal institutions of the first world nations
- They charge little to no taxes on the assets held by them
- They have shorter statute of limitations to offer full protection to your crypto assets
- They can protect even those assets that are not held within their jurisdiction
- They may allow you to make transaction with your crypto electronically and, most importantly,
- They usually do not entertain foreign judgments.
Whether it is a foreign judgment creditor or a court, they will need to file a case within the jurisdiction of the offshore trust to claim or seize the assets.
This is quite difficult because it involves a lot of money and a significant number of barriers to overcome which makes such moves unproductive and unfeasible.
One of the good things about the offshore asset protection solutions is that it ensures that the management has no relation or any business presence in the United States and it is not regulated by the US government bodies.
They are typically registered with and regulated by the governments of the jurisdiction they operate in.
However, to use an offshore asset protection strategy, you will need to transfer your crypto or other assets to the trust and a Deed of Trust will be created.
Once it is done you will be relinquished from the ownership of the same assets, now being an asset of the trust.
However, your assets will be managed by the trust just as it is legally agreed and wanted by you and mentioned in the Deed of Trust.
The most important factor, therefore, in this regard is the relinquishment of ownership.
This is the key to complete asset protection.
If you do not own an asset legally, no court can seize it from you or coerce you to turn your assets over to them, not even by wielding any amount of power or influence. Simple.
This is because the assets will now reside in a jurisdiction and protected by a judicial system that is different from your home country.
Therefore, they are now bound by a completely dissimilar set of laws which will favor you and not the judgment creditors.
However, there are two specific issues that you should keep in mind at this point.
One, the timing of the transfer might have a significant impact on a certain type of assets like crypto.
If it is deemed as a ‘fraudulent transfer’ or to constitute a fraud, there might be some issues faced.
And two, when you transfer your crypto you will typically need to transfer them from your wallet to theirs.
And, in the case of crypto wallets, the private key is the key element that ensures safety and ownership of the funds and assets in it.
If it is lost or compromised, the funds will be lost forever.
Therefore, check their guidelines to know how they manage your funds and especially the private keys to have a complete peace in mind.
Traditional Protection Plans
When it comes to protecting your crypto assets and crypto wallets, the traditional protection plans are simply not enough.
The primary reason behind this ineffectiveness is that these plans are typically self-settled by nature.
It is a common belief among the crypto investors, as said earlier, that their assets are well protected from any type of internal or external threats.
There are some good reasons for them to possess such type of notion such as:
- The innovative traits of the blockchain technology
- The immutable cryptographic records maintained on the blockchain
- The decentralized system and
- The deregulated nature of the digital currency.
However, in reality, this is a false sense of safety and security.
This means that though you can protect your own assets, there is still some vulnerability that remains and therefore the judgment creditors can access your fund.
And, sometimes the court may even execute its discretion and stop the case from being tried in some other jurisdiction.
Therefore, your crypto assets, just as any other type of assets, will be susceptible to legal claims, lawsuits, and potential seizures.
The best way to avoid such consequences is to give your crypto assets more secure protection and safe custody with a combination of banking laws and offshore trust.
However, when you choose such a solution to protect your crypto assets just make sure that you consider all other factors that may affect the different aspects of your digital assets such as:
- The security
- The storage
- The accessibility
- The price volatility
- The tax implications
- The valuation and
- The illiquidity.
This points out that even though investing in crypto is an effective and a strategic move to diversify your investment portfolio, it will be unwise to rely blindly on the privacy endemic to crypto when it comes to protecting these virtual assets.
When it is a complex yet essential matter of protecting your assets from legal claim and lawsuits, crypto is in no way different from the other assets such as stocks, property, or valuable metals.
Therefore, you will need to choose a solution that is ideal for protecting all your assets, including your digital assets.
Therefore, research well and spend some time on it before you make your final decision.
You may even consult with a financial advisor and tax lawyers who know about crypto.
They will be able to help a great deal in choosing the right solution.
However, no matter whichever asset protection strategy you choose, just make sure that they are reliable and reputable.
Ensure that they have multiple levels that intertwine with each other to provide the strongest and most effective asset protection plans possible.
It is very important to protect your crypto from all possible vulnerabilities and threats, both internal and external.
As this article points out, it will be unwise to rely on the usual means. Choosing a legit and proper asset protection strategy is vital.