We will cover some common asset protection examples and why you need them. When you’ve never had an issue with a lawsuit or had to face a financial crisis, it can be easy to think that you’ll continue to be safe. You run a good business. You keep your personal and professional assets above board and are an honest, hardworking person. How could you ever be sued or threatened by a creditor?
The truth is that bad things can still happen to good people, and you have likely been lucky so far. The Legal Research Network has found that about 15 million lawsuits are filed in the U.S. each year. This means there is one new lawsuit for every 12 adults. Facing those odds every year isn’t good. A single lawsuit can devastate everything you’ve worked so hard to build.
Everything does not have to be lost, however. Setting up an asset protection plan now can save you the financial and personal stress you might face later.
To better understand what asset protection is, let’s start out by defining it. Per the Asset Protection Society, asset protection is “protecting your wealth from anyone or anything that can take your money”. Anyone with any amount of wealth should have a plan to keep that wealth safe. The earlier you start forming your plan, the better off you are. Once you are already facing a lawsuit, it might be too late – and even detrimental – to try to protect your assets.
Your asset protection strategies can be simple or complicated. Plus, the expense of the strategy will vary depending on how much protection you need. Have a general understanding of your options. When you do, talking with a financial professional means much more to you. Then, the two of you can more readily create the best plan for your unique situation.
Let’s suppose you have a good reputation and have already been careful with how you use your money. Thus, you may still be skeptical as to why you need asset protection security. Any individual or company has potential threats to their assets, especially those with a lot to lose. Keep in mind, the threats don’t end with just lawsuits.
Money Crashers breaks down potential liability into two categories: professional and personal. For your business, lawsuits dealing directly with your products or services are a large part of professional liability. They include such possibilities as trademark infringement and breach of contract. Your employees can also threaten your assets when something occurs in the workplace. Examples are sexual harassment, employment discrimination, work-related vehicle accidents, and workers compensation. Your customers could file a claim of faulty products, malpractice, or having a “slip and fall” accident on your property.
In your personal life, things like divorce, debt, medical bills, and foreclosures are well-known risks to your assets. Other problems can come if you haven’t taken specific steps to separate your personal and professional assets. Employee actions and vicarious liability – when your business partner or employee has an accident – can result in lawsuits that threaten your personal assets as well. You can be held liable in an auto accident if you or your dependent drivers are uninsured or underinsured. If someone gets hurt on your property, regardless of if you were present, you might be liable. If you have a callable loan and your lender demands repayment immediately, your assets can be seized to cover the debt.
To protect yourself or your business from one of these liabilities, there are several different strategies you might consider.
One of the most efficient asset protection examples to keep your assets out of the hands of creditors is with a trust. Transfer some or all of your assets to a trust run by an independent trustee. Doing so can shield those assets for you and/or your children, and allow you to receive distributions.
There are a variety of trust types available out there, in locations all over the world. Although most people generally think only of the wealthy using offshore trusts, Investopedia says that there are many options within the U.S. as well. Several states – including Alaska, Delaware, Rhode Island, Nevada, and South Dakota – allow asset protection trusts, and you don’t need to live in those states to take advantage of having a trust there.
There are several requirements for setting up a domestic asset protection trust, which Investopedia goes on to explain. The trust must be irrevocable and have an independent trustee that is either an individual, bank, or company located in that state or country. Distributions are only allowed at the trustee’s discretion, and must have a spendthrift clause. The trusts documents, administration, and assets must be either partially or entirely located within that trust’s jurisdiction. State statutes do vary, however, so it’s best to check the laws of that state first.
It is very important to note that domestic judges have jurisdiction over domestic trusts. So, setting up a trust offshore is a better option for asset protection. An offshore trustee can refuse your domestic court orders. So, to maximize asset protection, offshore trusts are some of the strongest legal tools.
Here is the strongest of the asset protection examples: the offshore trust. If you choose an offshore trust for your assets, some of the setup and provisions are the same as with a domestic trust. However, offshore (foreign) trusts offer a layer of protection you can’t get on your own soil: protection from local courts.
Here at Asset Protection Planners, we often cite two main benefits for offshore trusts. The first is protection from an over-aggressive court system. The fact is, foreign trusts consistently display better than domestic ones, allowing you to keep more of your assets. Now, keep in mind, US people are taxed on worldwide income. So, for the US person, these trusts are typically tax-neutral. A second benefit is that a judge in your country can’t compel a foreign trustee. Thus the offshore trustees does not need to provide a creditor access to those funds and assets. Even if a creditor decides to pursue those assets, an expensive legal battle would ensue. Moreover, it would ensue in that offshore jurisdiction that is very friendly to debtors, making this option unfavorable for the creditor.
A foreign trust still allows you access to the benefits of your asset and gives you extra security. It can also allow that foreign trustee to advise you on the best course of action to grow your assets within that specific trust. The difficulty and expense of securing an offshore trust will depend on that jurisdiction’s laws. The best offshore jurisdictions for offshore trusts are, in this order, Cook Islands, Nevis and Belize.
That said, one of the best asset protection trust strategies is this: Setting up a Cook Islands trust that owns an offshore LLC. Say, your offshore trust owns a Nevis LLC. With this powerful asset protection example, you are the manager of the Nevis LLC. You are the signature on the bank accounts. Then when a legal warning sign arises, you can have the trustee step in as manager of the LLC. Upon this even there is not asset transfer; merely a change of managers of an LLC. Thus, the LLC acts as the remote control into your trust.
Creating limited liability companies (LLCs) or corporations have long been cited as strong strategies for protecting your assets. One of the reasons that this strategy protects assets is that the creditor is often limited to a charging order against the membership interest, according to Investment News. A charging order gives the creditor the right to receive distributions from the LLC that would otherwise go to the debtor. But, it does not give the creditor access to the ownership of the underlying assets of that LLC. Because the debtor’s controlling interest may limit distributions, this means that the creditor may receive little to no actual payment.
In addition, Investment News says that with this asset protection example creating an LLC allows an individual or company to transfer assets in a tax-efficient manner. This can also minimize estate taxes. Plus it can you maintain control of ownership transfers when you hold the LLC manager position.
Your personal or business vehicle is one of the riskiest assets you own. Accidents happen. And even if someone else is driving your vehicle, you still have the ultimate liability. If other property or persons are damaged because of an accident, the injured party can sue you. Getting a comprehensive insurance policy on your vehicle is of course a good start. But it might not be enough car asset protection. If someone sues you for more money than your insurance policy is willing to put up, you could stand to lose a lot without extra protection.
Where your insurance policy ends, an LLC can cover the rest. To begin, you create an LLC and transfer the ownership of your personal or professional vehicle to that LLC. Then, the defendant in the case of a lawsuit will be the LLC, not you.
So, here are some examples of asset protection for your most dangerous asset: your vehicle(s). According to Keyt Law, LLC, there are three main reasons to create an LLC for your vehicle. First, if you have one or more family members or third parties that you allow to drive your vehicle, an LLC protects you from the liability of their accident. Second, if you own a vehicle that you use in your business, a separate LLC can help prevent a lawsuit against your business in the event of an accident. Third, if your business owns a vehicle, transferring ownership of those vehicles to a subsidiary LLC that your business owns 100% of can also help prevent vehicle-related lawsuits from coming back to your company.
When you want to make sure that your assets are safe, make sure you’re doing it right by consulting an asset protection professional. It can be difficult to navigate the world of asset protection alone, and having someone there to assist you can ensure that you have the most complete protection.
Per Lodmell, an asset protection attorney is a person that works with each individual or company to determine which plans, trusts, and business entities will best meet their specific situations. He or she looks beyond conventional legal practice to find the best protection for their clients, even if that protection is in a foreign jurisdiction. The main goal of an asset protection consultant is to ensure that they help you protect your assets from flaws in the legal system that might put you at risk in the future.
No matter which of these asset protection examples are right for you, starting your plan can save you pain when the worst happens to you. Don’t wait until it’s too late to protect yourself and your business. Use the numbers above to get a hold of us. Alternatively, you can complete the free consultation form to have one of our specialists contact you.