A Lawsuit Story: A Case for Asset Protection
An Actual Event That Happened to a Real Person
Why Protect Your Assets Now?
He was just 28 years old. Joe Taylor (whose name has been changed to protect the innocent), the young, trusting, wannabe entrepreneur had visions of sugarplums dancing in his head. He had recently attended one of those “get rich” real estate seminars, at a large Seattle hotel, that he had seen advertised on late night TV.
Joe had taken his knowledge, what little he possessed, and drove to the coast with his pregnant wife to meet the seller of a dilapidated 6-unit apartment building in the slums of Tacoma. $3000 down and monthly payments $493 to the seller was the deal he had so cleverly negotiated.
Over the next couple of years managing the property, he learned how had to evict prostitutes, drug dealers, gang members and, oh yes, collect rent. He picked bullets out of the walls with a pocketknife on more than one occasion after some all-too-familiar drive-by shootings.
Rooked by a Conman
Joe decided to fix up the property. So, he took the little money he had made from renting the property and tapped his meager savings account to make improvements to the building. He was introduced to a contractor at a friend’s housewarming party by a fellow church-member. The contractor, who had recently joined the same congregation, was in his mid 40s, new to town, handsome, well groomed and smooth-talking.
The contractor said he desperately needed money to pay some back-taxes and would do the work for cheap if he was paid $8,000 up front. In exchange he would paint the building inside and out, replace the cabinets and put in new floors in all six units. Joe obliged, thinking he was both helping a fellow-parishioner and getting a bargain.
The Trusting Soul
The inevitable happened. The contractor spent the money on his taxes and had none left over to finish the job. So, the builder approached a factor financing company; a break-your-knees joint on the Seattle waterfront, to obtain a short-term loan. The work ensued, and thirty days later the contractor had a problem. The factor-financing loan became due. The contractor asked Joe if he could borrow the money to pay it off. In turn, the contractor would get another loan from the factoring company to repay Joe.
Joe complied and paid the contractor’s lender directly. The contractor got a second loan. Joe was repaid, and the fix-up work continued. The same scenario occurred two more times, with Joe getting repaid and the contractor continuing the job.
Then the world collapsed. Joe got a call from the lender that said that the $70,000 loan was due. What $70,000 loan? The contractor had been forging Joe’s signature on the factor financing loan documents.
Joe had been set up. The contractor had Joe re-pay the loans directly to the lender to make it appear that Joe and the contractor were in cahoots. The day the big burly guy pulled up in front of Joe’s house with lawsuit papers was the day that Joe and his wife brought home the couple’s second child from the hospital, a newborn son.
A four-year knockdown drag-out legal battle ensued. The legal bills were devastating. It was like a vacuum cleaner sucking dollars out of his bank account. These were four long years where Joe would lie on his back at night staring at the ceiling in a pool of sweat worrying about how he would provide for his family. Would the family of four be kicked out onto the streets, homeless, begging for pennies? He would look to his left. There was his wife lying in bed in pool of sweat staring at the ceiling.
Research revealed that the contractor, a former drug dealer, had for years run a chain of cons from Hawaii to Texas to Florida leaving a string of victims in his wake.
The Wakeup Call
The young couple’s friends couldn’t understand. “You guys are victims.” “Can’t you just tell the courts this?” “Can’t you just tell them that?” If you have never been in a lawsuit, it is difficult to understand. The reasoning of an ordinary human being and the rationale of the courts are two different animals. It’s like a pit bull has you by the throat and it only lets go when it decides to let go. Then you have to convince a jury of 12 strangers that you are innocent of wrongdoing. Meanwhile, your opponent is bent on making you look like Adolph Hitler.
Joe was wiped out financially by the ordeal. Lawsuits take lawyers and Joe had no money left to pay them. The lender seized Joe’s small apartment building and his bank accounts were left dry from the legal bills. He and his wife filed a no-asset bankruptcy and were left penniless. The contractor ended up in prison for nine months. A painful lesson was learned by all.
You are Not Alone
Joe and his family are not alone. The United States has just five percent of the word’s population, 70% of the world’s lawyers and 96% of the world’s lawsuits. Legal experts agree that there are literally millions of lawsuits filed in the U.S. every year that would not be pursued overseas. Many of these lawsuits are filed by lawyers who must litigate just to survive.
A survey conducted by Harris Interactive, revealed the following:
- 76 percent of the people surveyed feel that fear of frivolous lawsuits discourages people from performing normal activities.
- Only 16 percent of the people trust the legal system to defend them against frivolous lawsuits.
- 54 percent don’t trust the legal system at all.
- 94 percent agree that there is a rising tendency for
people to threaten legal action.
- 83 percent feel that the legal system makes it far too easy to make bogus claims.
- 56 percent believe that fundamental changes are needed to improve the civil justice system.
The most revealing result was that 87 percent of Americans surveyed agreed that the justice system is used by many as a lottery by filing lawsuits and seeing how much they can win.
In addition to an overabundance of lawyers, the U.S. is about the only civilized country in the world that does not have a “loser pays” legal system. In other countries of the world, such as Canada and England, for example, the one who loses a lawsuit pays his or her own legal fees as well as those of the opponent. However, in the U.S. this scenario is much different. Even if a party to a lawsuit wins, he or she is still out his or her own legal expenses. What this means is that in the U.S. even if a defendant in a lawsuit wins he or she still loses.
In other countries, one must think twice before bringing suit. Is the chance of losing the lawsuit and paying the bills of two attorneys worth the possible outcome? Most foreign lawsuits that would be litigated in the U.S. are dropped before they start.
Of course those who live outside the U.S. are not safe. The rising tide of litigation remains a major concern in a majority of countries around the world.
The lawsuit jungle does not vanish after your death. Probate fees, which are paid in order to bring your estate to closure upon your death can take a sizable chunk of your estate. Probate is, in summary, the procedural act of proving that a will is valid. Some people believe they can avoid probate if they have a will. This is quite the contrary.
Many states set the probate fees that an attorney is allowed to charge. These fees are often around 8% of the gross worth of the estate. If a jurisdiction does not have state-mandated probate fees, each attorney can establish his or her own rate. The attorney can charge based on a percentage of the gross worth of the estate or the attorney can bill his or her clients on an hourly basis or both. This arrangement often ends up costing the same as or more than charges incurred in a state that has state-mandated probate fees.
Let’s take a look at what we mean by gross worth. Let’s say, for example, that you leave behind a $400,000 home upon your death. For the purposes of this discussion, we will say that you were somehow able to acquire a $399,000 mortgage on the property before you died. To move this particular asset through probate, it would cost your estate, ($400,000 x 8%) $32,000 in probate fees. Since in this example your heirs have only a $1000 equity in the property, they would lose $31,000 worth of your estate to simply move this asset through the probate courts!
There is some good news. There is a way to avoid probate completely. Read on for solutions to this dilemma.
Not only do you need to be concerned about probate after your death. Estate taxes also take their toll. Estate taxes are paid over and above probate fees. The U.S. Internal Revenue Service has, for years, sets its maximum federal estate tax rate at 55%. If sizable, the federal, and sometimes state, government can take a majority of your estate before it is distributed to your heirs. Continue reading to find out how to virtually eliminate estate taxes.
Solving these concerns is what this publication is about. We take you through the legal tools that can help you protect your assets from litigation. Additionally, we show you how, through the use of the proper legal entities, to protect yourself and your business from excess taxes. We also show you how you can avoid probate fees and lower or eliminate your estate taxes by simply structuring your affairs properly. It is our hope that you find the information contained in this booklet useful today and that we can help you build your asset protection plan.
Do It Now
The average man or woman in the United States today experiences five lawsuits in his or her lifetime. The odds are that one of these is a devastating lawsuit.
You can and must safely shelter your assets from lawsuits before a lawsuit strikes. The law deals quite harshly with those who seek last minute transfers of assets in an attempt to defraud creditors. What this means is that you must realize now that you can run into financial trouble. You must recognize and come to grips with your own vulnerability. When you get this reality under your skin, only then will you have the sense of urgency necessary to take action to protect yourself from the virtually inevitable.
Most of those who have assets to lose occasionally consider taking action to protect their assets and lower their taxes. The reminder may strike around tax time or when a lawsuit or other tragedy strikes. However, the consideration often fades when the danger subsides. Then the procrastinator is usually leveled with a financial blow that robs the individual of hard-earned resources.
You are strongly urged to follow these words: DO IT NOW! These are the most important words in this book.
Write it down in your appointment book right now. Tell yourself that you will talk to a knowledgeable attorney. Feel free to call us. This is the beginning of a safe and secure financial future for you and those you care about. If you already have significant resources, you already know that this is action you need to take now. If you do not yet have significant resources this is the foundation upon which to build a strong financial future.