Asset Protection Strategies
Asset protection strategies are legal and financial plans developed to shield valuables from lawsuits. They includes analyzing a list of assets that need protection and determining which legal tool or strategy would ideally protect each one. Examples include forming certain types of trusts and companies and taking advantage of regional laws designed to protect assets. It can aid in achieving financial goals, estate planning for the next generation, as well as facing the reality that we are all vulnerable to litigation. Though pre-planning is best, there are even ways to protect yourself after a lawsuit is filed.
Five Asset Protection Strategies
Here is a list of five common legal strategies for shielding assets from lawsuits.
Asset protection strategy number one is to use limited liability companies. LLC statutes include provisions that keep a creditor from taking the company or the assets inside. The exclusive remedy in most jurisdictions is a charging order. The charging order says that the creditor has the right to distributions paid out of the LLC. But the creditor cannot force you to make such payments. Whoever has the right to the distributions is responsible for the taxes whether they are paid out or not. That means you stick your creditor with a tax bill instead of an asset. Wyoming, Nevada and Delaware have most protective domestic statues. Stronger yet is Caribbean island of Nevis, which possesses potent laws to shield company holdings.
Asset Protection Trusts
This is considered the most powerful tool for keeping creditors away from your assets. How does it work? Local courts do not have jurisdiction over foreign trustees. It ties the hands of the courts and the opponent’s attorney. There are domestic options but the strongest legal statutes are in the Cook Islands and Nevis. The offshore trust is one of the few asset protection strategies that work after a lawsuit is filed. This strategy works best for liquid assets.
Own Nothing Personally
There are legal tools that keep creditors for seizing what is yours. When you get sued personally, most assets in your name are vulnerable. We are not saying not to own anything. We are saying do not hold non-exempt assets in your own name. Why? Because the first thing a contingent fee attorney does when thinking about suing you is to do an asset search. Own a car? Why not own it in a title holding trust to keep your name out of the public records? Own or might own rental property? Why not hold it in a land trust for privacy of ownership? Then you can hold the land trust in an LLC for lawsuit protection and asset protection. Have a sizable savings / investment account? Hold it in your own name? If so, to the opposing attorney getting at your assets is like shooting geese in a pond. When you hold it in a proper asset protection trust, you have access but your opponent does not. Moreover, when you pass away, your trust names your heirs as trust beneficiaries. The bottom line? Since there are legal tools help you keep what is yours, why not use them?
Use Separate Legal Tools
Experts agree you should not own investment real estate in your own name. When someone sues you, you could potentially lose all of it. Holding real estate in an LLC is a good idea. But what if there is a tragic accident that surpasses your insurance coverage? This is very common. Why not own each piece of real estate in a separate LLC? That way, you cubby-hole your liability. Thus, a lawsuit against one of your rental properties does not domino into losing all of them.
Don’t Flaunt Your Wealth
It’s much better to be rich than to look rich. It may feel good to have your neighbors know you are doing well. But ostentatious displays of wealth breed more jealousy than admiration. Flashing your cash and you might as well wear a big neon “Sue Me” sign around your neck. Lawyers need to take food off of your table in order to put it on theirs. And, trust us, they have as much sympathy as hungry pack of lions. There are no feelings. You’re just their next meal.
Your profession also determines your level of risk as well as which strategies that you need to employ to protect your assets. If you are a physician, are in the real estate industry your needs are likely greater than a typical desk employee. Speaking of employees, no matter what profession you are in, if you have employees you have liability. We have spoken with business people who have been falsely accused, of discrimination, sexual harassment and wrongful termination. Others have experienced tragedies where an employee had injured another as a result of a car accident or equipment mishap.
If your love is on the rocks, an expensive divorce could cost you a tremendous amount in legal fees in addition to the division of assets. There are ways to protect yourself from such a life-disrupting scenario.
Can you hide assets? There are some ways you can make it very difficult for all but the most determined creditor to find out what you have. The important thing to know, though, is hiding is one thing. Protecting is another. A thorough deposition can uncover most hidden assets. So, there are ways to hide assets. But if you protect them, even if someone finds them, they remain safe and secure for your future use.
What You Protect
What do you have to protect? Do you have liquid assets? A personal residence? Investment real estate? Automobiles? What you have to protect will determine which legal tools you need to use and whether domestic or offshore protection is what you need. Where you live will also make a difference. Florida has 100% homestead protection for primary residences. New Jersey has zero. California residences tend to have more value than houses in many other parts of the country. The amount homestead exemption in that state, however, does not sufficiently reflect the elevated values for many people.
Asset Protection Attorney
The topic of asset protection is generally not a focus of instruction in law schools. The reason is that it is counter to the profession. The more educated people are on the securing of wealth the less lucrative it is to the legal profession. That is why many attorneys are not schooled on the topic. We have established legal tools for attorneys and their clients for several decades. Are you an attorney or simply a person who needs to take protective measures for yourself? There are knowledgeable consultants who can discuss your needs. There are numbers and an inquiry form on this page for that purpose.
Customizing an asset protection strategy is done when you establish specific legal tools to hold specific assets. Each legal vehicle represents state, federal or foreign laws that limit one’s liability or protect personal assets from specific risk. For example, Florida homestead protection laws protect all of the home equity of an individual’s primary residence in bankruptcy, lawsuits and judgments – state homestead protection would not provide protection in a divorce. A strategy is created based on the risks of the individual seeking protection.
Knowing what to do won’t help. You actually need to set up the proper legal tools and use them if you want financial security for the legal predators out there. So, make the call. Educate yourself. Then take action on the asset protection strategies that are right for you.