Monitoring Ongoing Asset Protection Needs as Time Progresses
It’s important to keep in mind that an asset protection plan is not a static entity. Asset planning changes as you do. The events in your life, such as a business expansion or closure, a new marriage or an emerging health concern, should be addressed by the asset protection plan you have in place. It is crucial that you regularly monitor your ongoing needs as time passes. This gives you the opportunity to make necessary changes in a timely manner to ensure that your asset protection plan provides you, your assets and your loved ones with adequate and sufficient protection.
Asset Protection Tip #1: Separate LLC for Each Business
Your asset protection plan should reflect the current state of your business or businesses, as the case might be. It should keep up with the changes in your professional life. Whether your business grows or shrinks, when you acquire new business assets or shed old ones, as you establish your business in other states or even into international territory – your asset protection plan must be in-step with these developments.
Each time you establish a new business, set it up as a separate limited liability company (LLC) on its own. This may seem like a natural decision to make. This is especially true when the new business you are establishing is completely different from a business you already own.
Let’s say your first business was a dry cleaning shop. Your second business is a restaurant. You should keep businesses in similar fields under separate LLCs as well. For example, let’s say you decide to open a store selling restaurant equipment. You already have a restaurant. Avoid the temptation to bunch them under one LLC. Cubby-hole your liability. Do this by operating your different businesses as separate LLCs. This insulates each business from a lawsuit that may be lodged against one of your business units.
Keep in mind that an LLC protects your personal assets as well, so operating each business as a separate LLC reinforces this protection. When a predatory creditor finds out that your other businesses are each held under separate LLCs, he or she will be less likely to be able to come after the assets held in your other businesses. To do so would mean waging a separate court battle for each unique LLC. This is a legal challenge that none but the most determined creditor will likely wish to undertake.
Asset Protection Tip #2: Protecting Real Estate
Place each additional piece of real estate property you acquire under an individual land trust. Then place each land trust under a limited liability company (LLC). The reason behind this two-step process relates to the ability of a land trust to protect your privacy. In additions, you can take advantage of the asset protection features of an LLC. Once the trust agreement is executed and the trustee deed is recorded, you cease to be the owner of the property. Although the trust agreement will stipulate that you are the beneficiary of the land trust, this is a private document. Therefore, this information will not be recorded anywhere else except in the trust deed.
Keep in mind that a trust deed is not, in and of itself, a legal corporate entity. While it does a good job of shielding your identity, it will not give you the legal protection as does an LLC or a corporation. If someone is injured on the property, you as the trust beneficiary can still be sued.
Placing the land trust under an LLC prevents this from happening. This is because an LLC that has been properly set up effectively keeps your personal assets separate and distinct from the assets held by the LLC. The LLC will be the beneficiary of the trust instead of you. The more blocks you put in place between your assets and a possible plaintiff or creditor, the less likely he or she will be motivated to go after you or your assets.
For tax purposes, you (or you and your spouse) will be the beneficiary of land trust that owns your personal residence. For investment / rental / commercial properties aside from your personal residence, having an LLC as beneficiary of the land trusts is considered prudent for both asset protection purposes and tax purposes.
In addition, a trust deed can add additional verbiage that includes estate-planning features. If you clearly state in the land trust agreement who will receive the beneficial interest upon your passing, it can help your heirs avoid a probate. Additionally, your spouse is only entitled to the certificate of beneficial interest in the trust and not to the trust asset itself. This ensures the continuity of the land trust in the event of future marital strife. A land trust can also prevent the partition of the land or property in case future beneficiaries disagree on its continued use or purpose.
Asset Protection Tip #3: Changes with Family Dynamics
Change is the one constant element in life. This is true for your professional as well as your personal life. Some changes are eagerly anticipated such as the birth or adoption of a child, while others may not be so welcome, such as a death or the dissolution of a marriage. You need to make sure that your asset protection plan will do just that – protect your assets – in light of the events that are unfolding in the personal arena of your life.
If you established a revocable or a living trust, changing the terms of the trust deed is not a problem. You can do this at almost any time. But this type of trust is not an effective asset protection instrument. It is precisely because you continue to exercise the rights to amend the trust. Thus, you can be ordered by a court to change the trust beneficiary to a third-party who won a lawsuit against you.
On the other hand, an irrevocable trust is a potent asset protection vehicle. The assets used to fund this type of trust are placed beyond the reach of future creditors and plaintiffs. If you want to be able to somehow alter the terms of this type of trust later on, without diluting its asset protection features, you must craft the trust deed with great care. When you set up the trust, you can include instructions in the trust agreement that permit the terms to be modified under very specific circumstances. This will make it possible for the trustee to alter the trust but only within the limitations of your instructions. Let’s say a beneficiary sadly dies or engages in criminal, addictive, or other wanton behavior. Or say he or she marries an unsuitable individual. In these events, trust benefits can be re-appropriated, withheld or even terminated, according to your instructions contained in the trust deed.
Asset Protection Tip #4: Protecting your Liquid Assets
As your liquid assets accumulate, you need to make sure you protect them more assiduously. Liquid assets such as cash, bonds, money market funds and shares of stock are especially attractive to predatory claimants. This is obviously because these types of assets are of immediate use to them. If a creditor wins a lawsuit and is awarded a lien on a piece of real estate as part of a debtor’s payment, it may take some time before he or she can convert the property into cash. For this reason, if your company is liquid, you should act quickly to secure your assets from devious claims.
Consider setting up a domestic or offshore trust to hold and protect your liquid assets. Many offshore jurisdictions have strong and strictly-enforced laws that are extremely favorable to trust settlors. As with any asset protection plan, having it already in place before any legal action is taken against you is best. It is a great deal better than setting it up when you’re already facing a lawsuit. But even if you find yourself in the latter situation, establishing an offshore trust can still work in your favor. Many foreign jurisdictions require judgement creditors to mount a new trial on their soil. This can be prohibitively expensive, time-consuming and tedious for your opponent. Several of these countries also have a broad definition of ‘fraudulent transfer’ and a limited window of opportunity within which a creditor can pursue this ruling against a trust established in their jurisdiction.
For none but the most single-minded creditor or plaintiff, knowing that your assets are kept in an offshore asset protection vehicle is enough to discourage them from going after them. Keep in mind that domestic trusts are under U.S. laws, so they may not offer the same nearly iron-clad protection as offshore trusts or LLCs. Many a judge has allowed penetration of domestic trusts. Not so in the preferred offshore trust jurisdictions such as the Cook Islands, Nevis and Belize.
Asset Protection Tip #5: Medicaid Trust
It’s no one’s favorite topic, but as you get on in years, you must consider protecting your assets from nursing home or extended care costs. This is simply another aspect that you should monitor in order to ensure that your asset protection plan is indeed comprehensive. If you bought long-term care insurance, you may already be in better shape than 92 percent of Americans who don’t have this type of insurance. One reason is simply because it’s too expensive. Many Americans prefer to bury their heads in the sand and think they will never need nursing home care. Sadly, current statistics do not support this unrealistic point of view. Up to 70 percent of Americans over the age of 65 will end up needing some type of long-term care at some point in their lives.
If you want to leave your assets to your family instead of spending them down to qualify for long-term care from Medicaid, you should act many years before you actually need nursing home or long-term care. To mitigate the cost of long-term insurance, you can buy a plan with a more limited coverage. Then you can pay for what the plan does not cover out of your savings or from some other financial resource.
Better yet, you can set up an irrevocable Medicaid trust. The assets you place in this trust will not be counted in determining your eligibility for long-term care from Medicaid and will instead pass down to your heirs and beneficiaries. Neither the person applying for long-term care nor his or her spouse can be a trustee of this trust, nor have access to or control over the trust assets in any way.
These are just a few examples of instances that demonstrate the necessity of an ongoing monitoring of your changing needs. You are strongly urged to take timely action to protect yourself, your hard-earned assets and your family and/or other beneficiaries. Get in the habit of reviewing your asset protection plan at least every quarter and certainly every time an important professional or personal event occurs. In this manner, you will be assured that no matter what happens in your professional and personal life, your assets will more likely be used solely for the purpose you intended.
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