The Silent Shield for Your Wealth
Imagine you’re a successful entrepreneur, real estate investor, or even a renowned artist. You’ve worked tirelessly to build your wealth, amassing properties, businesses, and valuable assets. One day, a lawsuit lands on your desk… a “slip-and-fall” claim at one of your rental properties, a disgruntled business partner, or even an opportunistic plaintiff who sees dollar signs when they Google your name.
What if there was a way to prevent your assets from being an easy target? A structure that keeps your name out of public records while providing an ironclad legal barrier against creditors?
Welcome to the world of Charging Order Protection Entities (COPE) – a powerful, often misunderstood asset protection strategy that separates the financially savvy from the exposed.
Let’s take a look at this together.
The Origins of Charging Order Protection Entities (COPE)
To understand COPE, we need to look at where it all began.
The Charging Order concept originated in English common law as a way to balance creditors’ rights with partnership interests. Courts recognized that if a creditor could simply seize a debtor’s ownership in a business, it could create chaos – forcing companies to deal with unwanted, uninformed owners. Instead, they developed the charging order, which allows creditors to place a lien on a debtor’s financial distributions but not interfere with the business itself.
Over time, certain U.S. states enhanced these protections by limiting a creditor’s ability to force distributions or take control of an entity. These jurisdictions, often called COPE states, became safe havens for business owners, investors, and high-net-worth individuals seeking to shield their wealth.
What Exactly Is a COPE Entity?
A Charging Order Protection Entity (COPE) is an entity, typically a Limited Liability Company (LLC) or an Asset Protection Trust (APT) (or other trust structure), that operates in a state where charging order protection laws strictly limit a creditor’s ability to seize ownership interests.
Here’s how it works:
- If you own an LLC in a COPE state, a creditor cannot force you to sell your ownership interest or take over management of the entity.
- The most they can do is obtain a charging order, which means they are only entitled to distributions if you choose to make them.
- Since you control when (or if) distributions occur, you can legally stall their ability to collect, making their pursuit of your assets a financial dead end.
This distinction makes COPE entities one of the strongest first lines of defense against lawsuits and creditors.
Which option is better? It depends!! Like most things in life, you have to base that decision on your specific situation and needs. Many savvy business owners combine both…using an LLC for business operations and a COPE Trust to hold wealth out of reach from lawsuits.
Public Records: COPE States vs. Non-COPE States
One of the biggest advantages of COPE entities is privacy.
Most business owners don’t realize that LLC ownership information is publicly searchable in many states. If someone wants to sue you, they can easily look up the companies you own, check their assets, and determine if you’re worth going after.
However, COPE states offer a critical advantage, many of them do not require ownership details to be publicly disclosed. This means:
- In a non-COPE state (e.g., California, New York), your name will be tied to your LLC, appear in a simple search, making you an easy target for lawsuits.
- In a COPE state (e.g., Wyoming is a popular choice), your name will never appear in public records, IF the LLC is structured correctly.
This anonymity alone can be worth its weight in gold for high-profile individuals, real estate investors, and business owners.
Which option is better? It depends on your specific needs. But it also depends on where your operations are located and the specific laws and interpretations of the established case law in that state.
As I mentioned before, many business owners decide to combine both… using an LLC and a COPE Trust for privacy, risk mitigation, and to hold wealth out of reach from lawsuits.
COPE Laws and Privacy Protection
Beyond shielding assets from creditors, COPE laws also provide significant privacy benefits, making it difficult for outsiders to determine who actually owns the assets within a trust. In states with strong COPE protections, public records do not disclose trust ownership details, adding an extra layer of security for high-net-worth individuals and business owners.
For example, an individual owns a rental property under their own name. If a creditor, lawsuit, or even a curious individual wanted to find their assets, a simple public records search would reveal their ownership, making the asset an easy target.
Now, imagine that the same rental property is instead held under an LLC, which is owned by a trust registered in Wyoming, one of the most protective COPE states. The creditor attempting to track ownership would find themselves hitting a legal dead end. The public records would show that the LLC is owned by a trust, but the name on file for the trust would not be the true owner. Instead, it could be an attorney or a registered agent.
While the real owner remains the trust’s beneficiary, Wyoming law does not require beneficial interest registration, ensuring that the ownership remains completely anonymous.
In addition, Wyoming permits the use of silent or “quiet” trusts, meaning even the beneficiaries themselves may not need to be notified about the trust’s existence if structured properly.
Further strengthening privacy, any court proceedings involving a Wyoming trust are automatically sealed, making sure that the identities of the involved parties will never be disclosed in a legal battle.
By establishing a trust in a COPE-protected state like Delaware or Wyoming (for example), individuals can take advantage of both rock-solid asset protection and complete anonymity. This level of privacy makes it exceedingly difficult for creditors to locate, let alone access, wealth that has been structured with careful legal planning.
This level of privacy and legal protection makes it exceedingly difficult for creditors to locate assets, let alone enforce claims against them.
Who Benefits from a COPE?
Not everyone needs a COPE entity, but for those in high-risk professions or with substantial assets, it’s an essential tool. Here’s who benefits the most:
- Business Owners: If you own an LLC, your business is always at risk of lawsuits. A COPE LLC ensures creditors cannot take over your company.
- Real Estate Investors: Rental properties are lawsuit magnets. Placing real estate inside a COPE LLC protects your holdings from legal threats.
- Doctors, Lawyers, and Professionals: In high-litigation industries, personal lawsuits are common. A COPE Trust can shield personal wealth from malpractice claims.
- High-Net-Worth Individuals: If you have significant wealth, you’re at risk of frivolous lawsuits. A COPE structure adds layers of legal defense.
- Famous or High-Profile Individuals: Privacy is essential for celebrities, athletes, and public figures. COPE entities remove your name from public records.
Looking at this list… you may think only wealthy individuals need to have a decent asset protection (in the form of a COPE) strategy. That is SO far from the truth we can possibly get. We live in the most litigious times ever – and people will stop at nothing, IF they can get into your pockets.
COPE Laws and Privacy Protection
The privacy protection enabled by setting up your trust in a favorable COPE state, adds another critical layer of defense: Privacy = Increased Difficulty = Resource Strain. Basically, let’s make the lawyers jump through so many hoopsthat they give up.
This is the first line of asset protection: the more difficult and time-consuming it is to track down ownership, the less attractive the case becomes for a creditor’s attorney. If pursuing a claim means facing legal roadblocks, delays, and uncertainty, many lawyers will drop the case or push for an out-of-court settlement… often for far less than the potential judgment.
Some of the most trust-friendly states with strong COPE laws include:
- Alaska
- Delaware
- Nevada
- South Dakota
- Wyoming
By establishing a trust in one of these jurisdictions, individuals can take advantage of both ironclad asset protection and enhanced privacy laws.
Real-World Example: A Famous Artist Shields His Fortune
A well-known artist, let’s call him Michael, had spent decades building his career. His paintings sold for millions, and he wisely invested his earnings into prime real estate.
One day, a major lawsuit threatened his entire portfolio. A former contractor claimed injury on one of his properties and sued for millions. If the lawsuit succeeded, it could wipe out Michael’s holdings.
Fortunately, Michael had planned ahead. His real estate wasn’t owned directly in his name. Instead, each property was inside an LLC, which was in turn owned by a holding company LLC in a COPE state. Because of this structure:
- His name never appeared in public records.
- The creditor couldn’t take ownership of his LLCs.
- The charging order protection blocked access to rental income, leaving the creditor with no way to collect.
The case dragged on for years, but Michael’s financial fortress held strong. Eventually, the creditor settled for a fraction of the original lawsuit, realizing they had no real leverage.
This is the power of COPE entities in action.
Final Thoughts: The Future of Asset Protection
Lawsuits are a reality of doing business in the modern world. The more successful you become, the bigger the target on your back. But with the right legal structures in place, you can create a financial moat that frustrates creditors, deters lawsuits, and keeps your wealth secure.
I’ve urged clients working with me to always have a Revocable Living Trust in conjunction with a COPE entity owning the Operational Entity in the state where you do business (which very well could be a COPE state already). By implementing this level of asset protection, we’ve been able to fend off several lawsuits by having this structure in place early on.
If you would like to explore this more and see what it could do for your business, book a free 45min consultation today.
By leveraging Charging Order Protection Entities, you take control of your financial privacy and fortify your assets against the unexpected.
Welcome to the New Age of Accounting. Let’s begin.
Chris is the Managing Partner at Weston Tax Associates, a best-selling author, and a renowned tax strategist. With over 20 years of expertise in tax and corporate finance, he simplifies complex tax concepts into actionable strategies that drive business growth. Originally from Sweden, he now lives in Florida with his wife and two sons.
