How to Legally Hide Your Money From a Lawsuit
You may be asking yourself “How do I legally hide money from a lawsuit?” It may be legal in certain circumstances to hide money or other assets from lawsuits, but the more important question is, “Is it effective?” If you have assets a crafty attorney will be able to sniff out those assets during a type of deposition called a debtor’s exam. There you will be ordered to reveal your assets or perjure yourself. Perjury, of course, is not legal. So, let’s change the phrase legally hide money to legally protect money. When you hide assets, they can most likely be found. When you protect assets by using the proper legal tools, even if your judgment creditor knows they are there, the creditor cannot touch them.
So, this article will discuss some ways in which you can hide assets. It will also discuss some ways in which you can protect assets. “Hide” is a common word that the layperson uses. Just keep in mind that “protecting” is much more effective than “hiding.”
Effective Ways to Hide Money
So, what are some effective ways to legally protect or hide money or other assets? The first important step you need to consider, without delay, is moving your assets to an asset protection trust. This article will discuss safe places to keep your money, the many different options for trusts, as well as other suggestions.
As said, it’s important that you start planning where you want to keep your money now. So, in the event of a lawsuit, you have fully-equipped yourself to withstand the storm. Waiting until someone files a lawsuit against you is dangerous because should you quickly move your funds elsewhere it may work. But the opposing attorney would try to paint you as a suspicious defendant.
Understand, the use of trusts, and especially the powerful offshore asset protection trusts are completely legal. There are a variety of options available to you, and you can browse this site for more information. We can’t stress it enough — don’t delay. You are already taking the first important step by educating yourself about the options available to protect your money. It is important that you do something about it. Knowing how to buckle your seat belt doesn’t help you in a car crash. You have to actually buckle it.
One Place to Hide Your Money
Retirement accounts are logical places to hide money (and to protect it). Many retirement accounts offer a reasonable level of protection for your funds, keeping others from seizing the money you have placed inside. There are laws in many states protecting those funds. There are however, two very clear disadvantages in using these accounts to hide your money before a lawsuit occurs.
First, many states give very weak protection to retirement accounts. California, for example, can order the seizure of our entire IRA if the courts determine that you have another sufficient source of income for retirement. Second, there are usually yearly contribution limits to these accounts. If you only have a small amount of money you want protected, this may be a great option. If, on the other hand, you have more or even much more than the maximum allowable contribution, you need to begin seeking alternative options to hide your money or better yet, protect it.
Limited Protection with Retirement Accounts
Another thing to consider with retirement accounts, is that access to your funds in their entirety, is usually not available until you reach a certain age. For instance, consider the following scenario. You have $80,000 in your retirement fund now, and after adding $5,000, your new total is $85,000. You only have access to part of those funds now because of the penalty for early withdrawal. The IRS warns that early withdrawal can cost you an extra 10% of your funds. That is essentially money that you’ve earned and will lose, because you decided to withdraw early.
Therefore, you must be cautious in using a retirement account as a place to “hide” your money from a lawsuit in a way that can actually provide protection. There are much better alternatives available to you. You can find most of these described explicitly here on the website. We also discuss some of these, in-depth, right here in the article. The truth is, if you need to use a retirement account to hide your hard-earned money, it’s safe in some states but it’s not the optimal solution. Therefore, experts encourage trusts for the amounts over and above the amounts that one can contribute to retirement accounts.
Asset Protection Trusts
First let’s define what these are. Asset protection trusts are types of trusts that allow you to hold funds for your benefit, but it keeps them shielded from your financial enemies; especially plaintiffs of a lawsuit. So, when someone sues you, the assets belong to the trust instead of you. You can use them, but your creditor cannot.
Think of it in the following way. Let’s just say your assets/wealth is your pet. Let’s call your golden retriever, Fido, your assets. You’re going on vacation, and you don’t want to leave Fido alone with your 13-year-old son, because you are concerned that the dog will end up roaming the city starving and dehydrated, and will then get hauled off to the dog pound before you return. You decide to entrust Fido to your sister who is very responsible and loves pets. Fido is safer with your sister Jenny. Your sister Jenny is the trust. Leaving the dog with your son unfortunately, is essentially leaving your assets outside of a trust, and vulnerable to seizure.
An asset protection trust can have the estate planning provisions of a living trust. For example, if you are married, when you die your assets can go to your spouse. When you both die, they can go to your children. If your children are underage, the trustee can be directed to take care of the living and educational expenses of children. Then the trust can stipulate when and what percentage of trust assets are made available to the children at certain ages.
Let’s discuss two types of asset protection trusts. First we will talk about a domestic asset protection trust in the state of Nevada. Then we will compare that to the offshore asset protection trust, most notably in the Cook Islands.
Nevada Asset Protection Trust
On the website, you can find detailed information about domestic asset protection trusts. Of all of the states, Nevada is thought to be the most favorable. We will discuss some important details, if you consider opening one. When you transfer your assets to a Nevada Asset Protection Trust, after two years, your assets can theoretically be protected from creditors. If you publish assets transferred into that trust in a newspaper in Nevada, the waiting period is only 6 months. This can work well in theory, as a place to hide money, but the case law doesn’t look too favorable. The offshore asset protection trust has worked much better in practice. Consider this suggestion if you want to keep assets domestic, and review this website information. Then you can feel free to ask us for a consultation.
Offshore Asset Protection Trusts
The offshore asset protection, properly established in the right jurisdiction, is considered by many experts to be the most powerful asset protection tool. Common jurisdictions are the Cook Islands (south of Hawaii), Nevis (in the Caribbean) and Belize (in Central America). It’s clear what you may be thinking right now. Is this legal to do? Is this safe? Can I really feel secure when I transfer my assets to a trust in the Cook Islands? The answer to all three of these questions is yes.
There have been attempts to crack the trust by the U.S. government on two occasions. Even they tried and failed; not that we would intentionally set up asset protection from the U.S. government, mind you. Subsequently, actual case law has demonstrated that this a clearly a legal and safe place for assets. Cook Islands Trusts have proven consistently to satisfy those who have them, and even exceed their expectations. The trustee we use is our own Cook Islands law firm. The following will discuss why we can trust them.
You have access to your assets while they’re in the Cook Islands Trust trust. In addition, you are the settlor of the trust, the one who had the trusted created. You can also be the beneficiary of the trust, the one who enjoys its benefits. Thus, you aren’t giving away your assets for someone else to use. The trust owns 100% of an offshore LLC. The offshore LLC holds the bank account. You are the manager of the LLC and the signatory on the account.
Trustee Protects You
So, you are in control of the trust assets. The only time a trustee of the Cook Islands Trust steps in to manage your account is in the event that a lawsuit could threaten your assets. So when the court orders that the assets in the trust to be turned over, your trustee can step in and refuse to comply. Since the trustee resides outside of the court’s jurisdiction, the courts do not have the legal authority to make demands of your trustee. Essentially, what you are doing is saying “here, can you hold onto these while I deal with this current headache?” The trustee then steps in until you are free and clear of the lawsuit.
Consider the alternative. If you don’t have a trust, and your assets are out in the open, especially if held domestically. The courts carry a big stick in the U.S. So, you have a very real possibility that if you try to hide money domestically, the courts can seize most, if not all of it. Hide your money from a lawsuit and it can be taken. But protect it, especially in the reputable Cook Islands Trust, and you can sleep like a baby. The trustee will partner with you and your wealth and will help to protect the fruits of your labor.
By the way, an offshore trust is an excellent way to protect your assets in a divorce. Read our article on trust vs. prenup. and you will see that the trust wins, hands down. In fact, it is one of the only tools that work in the case of a divorce.
Living Trusts – Estate Planning, Not Protection
Many people erroneously believe that a living trust is a tool that can be used to protect assets. The truth is that a living trusts offers little in the way of asset protection. It can provide protection from probate fees. Probate fees are legal expenses paid to administer the assets of the deceased.
There are three clear benefits to a funded living trust. Funded means that accounts and other assets are actually re-titled or otherwise transferred into the trust. The three main benefits are probate avoidance, reduction in estate tax and the directing of your assets up on your death. Be sure to view the information on the website concerning living trusts if you are considering this route. Bottom line is a living trust is much more of an estate planning tool than an asset protection tool. It is not a place to hide money, or to protect it.
Land Trusts – Hide Real Estate Ownership
What to hide your real estate ownership? A land trust is interesting in that it allows for you to hold onto property anonymously without your name appearing on title in the county recorder’s office. If you own a home and that asset is in a land trust it does not tie you to that property publicly. Your name does not appear in the public records as owning that property. So, say someone sues you or your business. It is unlikely that an opposing lawyer will initially be aware of your ownership the properties that you are associated with that are entitled to land trust. They will not be drooling at the sight of what financial benefits they can obtain from your real estate holdings, because your association with them are essentially invisible.
A land trust is generally not an asset protection device. It is a tool that can provide privacy of ownership. So, essentially, it is a means to hide assets, that the trust holds, for your benefit. If you someone sues you, however, and you lose the lawsuit, the opposing attorney will almost certainly find them.
Before an attorney accepts a case on a contingency, he or she will most likely do an asset search to see what you own and what the attorney can take. So, a land trusts may discourage an attorney from taking a case on a contingent fee basis because, by camouflaging the ownership your home and other real estate, they can make you appear poorer than you really are.
In order to truly protect real estate, own each piece of property in a separate land trust. Then own each land trust in a separate LLC. Establishing an LLC in the right jurisdiction can help protect your real estate from someone taking it away from you in a lawsuit. It can also help shield you from a legal attack if you have liability associated with the property.
Family Member Transfer
Transferring your assets to a family member may seem to be a logical option, but it is not a sound asset protection strategy. First of all, the courts will accuse you of fraudulent conveyance, also known as fraudulent transfer. When a creditor’s attorney successfully argues this matter, the courts simply order the seizure of the property anyway. That is, unless someone did it many years ago. (Moreover, such a transfer during one’s lifetime can trigger a tremendous tax burden.) Plus, the creditor can now sue the family member to get the money back. So, to hide money with a relative is really is an ineffective and dangerous protection strategy when someone sues you.
Another problem with transferring assets to your mother, brother, or child is you lose ownership of that asset. Families can argue. Parents, siblings or children can disagree. You are essentially putting the trust of your hard-earned assets into the hands of another person. People are unpredictable. There are many stories where trusting people have transferred assets to family members, to hide money from a lawsuit, and the family member never transferred then back. Moreover, since the US has 96% of the world’s lawsuits, what if someone sues your family member?
What We’ve Discussed
The use of retirement accounts can be a place to protect or hide money from a lawsuit, but there are many disadvantages. Three of these disadvantages are that many states offer very weak protection for IRAs, that there are maximum annual contributions, and you don’t have full access to all the funds in their entirety. Plus, the IRS imposes withdrawal penalties that can really cost you if you need the money to cover expenses such as legal fees.
An Asset Protection Trusts can be a very good place for your money. Offshore trusts such as those in the Cook Islands Trust, seem to get the top vote of the most experienced among us. There are also domestic trusts such those in Nevada, that offer inferior protection to those established abroad.
Lastly, we discussed the ineffectiveness of transferring assets to a family member because of fraudulent conveyance statutes. Plus, family can be unpredictable, and this means it’s not necessarily a safe alternative. Also, what if someone sues them? Then, the lawsuit against your family member would fully expose yours assets again. It would be beneficial for you to review the various trusts suggested on this website as a place to hide your money or protect it before a lawsuit even occurs. Get to educating yourself now, and planning the right strategy for you because last-minute transfers of assets can leave you more vulnerable. In other words, don’t wait until someone sues you before you act. Do it now.
Last Updated on September 9, 2019