Securing your wealth against risks is just as important as building it. Even if your decisions are correct in growing and accumulating wealth, neglecting protection can lead to ruin.

Puerto Rico’s retirees face approximately $90B in hurricane losses, a 21% senior population surge, and creditor risks amid fiscal instability. Regardless, if you have proven strategies, they can protect you against such emergencies. 

Asset protection planning is something that is all about securing your assets in a way that safeguards them from potential claims, creditors, or lawsuits. Asset protection also shields your wealth against natural disasters like hurricanes and fiscal uncertainties. 

It leverages local laws while integrating US federal protections, tailored for retirees and Act 60 investors. 

Understanding Asset Protection

Asset protection means shielding your wealth against any possible risk before it arises. In Puerto Rico, asset protection is all the more important as it can counter hurricanes like Maria’s $90B destruction, fiscal debt under PROMESA, and a lawsuit -prone environment where Act 60 investors face litigation risks.

Over the past decade, there has been a dramatic increase in the senior side of the population in Puerto Rico. As of 2010, approximately 21% of residents were over 65 years of age, which translates into a dependence on state (Puerto Rico) and local (city/town) laws to help protect their home equity through homestead exemptions due to the large number of workers who have fled the island (an estimated 700,000+ people).

Additional Strategies for Comprehensive Protection

To maximize protection for the vulnerable group from creditors (e.g., court judgments), the following additional wealth protection strategies in Puerto Rico are available for a senior citizen individual owner of a home:

  • Homestead laws in Puerto Rico provide that no judgments can be entered against the owner of a homestead on the Homestead Property (aka principal residence);
  • Indexed annuities will protect a retired individual from declines in the stock market, while providing principal protection and tax-deferred growth; and
  • While there are no local DAPT laws in Puerto Rico, seniors may establish offshore asset protection trusts (APT) in a state such as Nevada that will insulate their assets from the jurisdiction of Puerto Rican courts, while providing a safe and sound manner to exclude Puerto Rican gain from taxation.

This plan results in the senior individuals who are retiring from Puerto Rico having a means of retaining their accumulated wealth despite the uncertainty created by the potential for hurricanes impacting the island.

Why The Island Stands Out for Asset Protection

Puerto Rico has a legal ecosystem that operates on a blend of local and federal laws. These can be used to create a well-designed asset protection trust in Puerto Rico. The laws here are structured to limit creditor access, support privacy, and offer smooth estate planning in Puerto Rico. This scenario is especially intriguing for investors and entrepreneurs from the US who wish to diversify their measures beyond the options available in the mainland area. 

Benefits of Planning in Puerto Rico

Asset protection planning in Puerto Rico has significant benefits, as no matter how appealing, the island has challenges. If you are planning to retire or relocate, business asset protection should be one of the first things you invest in. Here are some of the benefits of strategic asset protection. 

  • Privacy: Several asset protection strategies in Puerto Rico can be structured in a way that keeps ownership details private. This reduces the risk of targeted claims. 
  • Legal Flexibility: Puerto Rico has laws that offer options that go beyond what is available on the mainland. This allows for protection strategies that are tailored to your interests. 
  • Tax Advantages: Certain asset protection structures can also provide tax benefits. This makes them more attractive 
Read Also: Indexed Annuities Explained: Retirement Income for Puerto Ricans

Key Strategies For Asset Protection

People with large amounts of wealth are often targeted for lawsuits and claims, resulting in the potential need to protect their wealth through asset protection.

The reason you’d consider using asset protection services would be based on your level of asset ownership and your profession, since owning a business creates more exposure due to risk from operating your business and from interacting with customers and employees. 

Additionally, some occupations, like surgeons, carry additional risk from an employee standpoint, creating an opportunity for damages to occur related to their employment. However, irrespective of who you are and what assets you have, asset protection planning in Puerto Rico is crucial. Here are some of the top strategies essential for the perfect plan. 

Analysing Financial Vulnerabilities

The very first step of guarding your assets or wealth is to understand what you own and the kind of risks you can be exposed to:

Assessing Your Goals and Assets

To understand how to best protect yourself, first you must have knowledge of the totality of your holdings; this includes not just cash, but also investments and real estate. You should regularly do a physical inventory of your possessions as part of developing your financial plan.

In addition, in order to successfully protect yourself, you will need to analyze the goals you have for your money and the assets you own. For example, if you have certain assets reserved for your retirement or for your granddaughter’s college tuition, then this will impact the way you structure the protective apparatus around those assets.

Identifying Potential Risks

Knowing any form of risk that may affect you or your finances is also essential. These risks may include the potential for divorce, lawsuits, bankruptcy, creditors, etc. Doing this can sometimes feel quite hard since you have to imagine every worst possible scenario that can potentially occur. However, being prepared for the worst may save your business from uncalled-for circumstances and expensive consequences. 

Legal Structures

Several legal strategies are available in Puerto Rico that can help you with business trust protection. However, the strategies depend on the type of risks, the type of assets, and your long-term goals to preserve what you have. 

Trusts for Protection

Asset protection can be achieved through the use of irrevocable trusts. An irrevocable trust is a legal transfer of ownership of defined assets away from you. The trust is created for the benefit of named beneficiaries and cannot be modified or revoked once executed.

Irrevocable means something that cannot be dissolved or changed once it has been created. Since you do not own or control the asset legally, they remain out of reach for any legal allegations directed at you. 

Here are some of the top benefits an asset protection trust has:

  • A creditor or court can’t force you to give up your assets
  • You can invest these assets for growth and generate income from them for generations, even 
  • The assets remain accessible for your beneficiaries. This includes everyone who comes after you, like your children and their children. 

Family Limited Partnerships (FLPs)

This policy allows your family or relatives to own shares in businesses within the family. This provides you with potential security from estate, creditors, and gift taxes. FLP is usually established to safeguard the generational wealth of families. These allow for tax-free transfers of real estate, assets, and other wealth. 

There should be a connection between every partner, either by marriage, lineage, or by tracing back to at least one common ancestor (such as children or grandchildren). Each partner can be classified as either a General Partner (who assists with the daily management of the business) or a Limited Partner (who has invested capital in the business but is not active in its daily management).

This type of partnership protects your wealth by keeping it within the family. However, keep in mind that:

  • You cannot involve non-family investors in the ownership of the business. 
  • Any limited partner leaving the company (in case of a divorce) has to return their shares immediately. 

However, it is worth reiterating that, as owners of an FLP, general partners are personally accountable for the company’s debts, even in the case of a bankruptcy. Accordingly, the general partners may have to provide their personal assets to satisfy the financial obligations of the business.

Read Also: Beyond 401(k): Investment Strategies for Puerto Rico Businesses

Wrapping Up

Business owners face many different types of risks, such as debts owed to landlords and suppliers, damage and liability claims, product and professional liability claims, and breach of contract claims, to name only a few. While family business owners can use a family limited partnership to limit their liability, by incorporating the rest of the policies, you can protect your personal assets from creditors inflicting a claim against your business by giving it a separate legal existence.

Partner up with credible firms like JLA Financial Planning and get strategic business asset protection in Puerto Rico tailored to your needs and long-term goals for your business.