When it comes to protecting your wealth, you don’t want to make any errors. After all, asset protection mistakes create avenues for creditors, lawyers, and other threats to lay claim to your wealth.
A single misstep can wreck an asset protection plan, yet people still make these top 10 asset protection mistakes almost every day.
1. Waiting Until It’s Too Late
Some people don’t think to start an asset protection plan until they’re facing legal troubles. This is a major asset protection mistake. Wealth defense strategies and tactics work best when they’re set up long before legal troubles arise. Attempting to establish a trust or other form of asset protection during a lawsuit opens the door to fraudulent conveyance claims. Plus, setting up trusts takes time, and they may not be fully prepared in time for your lawsuit’s conclusion.
2. Only Using Insurance
While everyone should have insurance to help protect their wealth, it’s a mistake to rely on it solely. Lawsuit settlements can easily exceed insurance coverage limits, and some insurance policies don’t even cover losses associated with a lawsuit.
3. Owning Assets in Your Own Name
Privacy is a key element of asset protection. If you own major assets such as real estate properties and major investment funds in your own name, you make it easy for contingency-fee lawyers to uncover your wealth. To effectively protect your wealth, let trusts and companies hold your assets. If someone ever attempts to sue you, they’ll quickly notice that you don’t “own” very much at all, which makes you a less appealing lawsuit target.
4. Using Revocable Living Trusts
The only trusts that can truly protect assets are irrevocable trusts, particularly those established offshore. A revocable trust, which allows the trust’s creator to alter the trust structure, doesn’t do anything to keep your assets safe from creditors once they’ve won a lawsuit against you. After a judgment is awarded to your creditor, they can force you to make withdrawals from any accounts you can readily access. Unfortunately, revocable trusts are easily accessible and can be plundered by your legal opponents.
5. Relying on Domestic Asset Protection Trusts (DAPTs)
Often, we hear stories about people who thought they were safe after setting up a domestic asset protection trust. Unfortunately, domestic trusts don’t offer the strongest asset protection available, even if they’re set up in a state with trust-friendly laws like South Dakota or Nevada. These trusts don’t always work because every state is legally required to uphold the rulings of another state’s courts. It only takes one lawsuit in a creditor-friendly state, such as California, to breach your DAPT’s protections.
6. Using a Single-Member LLC
Single-member LLCs, as the name implies, only have one member — you. This makes it easy for courts and clever lawyers to strip the usual protections afforded by a business when someone sues you personally. Why? Because most states only grant charging order protection to multi-member LLCs. Thus, a persona lawsuit can take your LLC and everything inside of it. To get stronger protection, set up a multi-member LLC. Better yet, hold liquid assets offshore in an LLC formed in an international jurisdiction like Nevis or the Cook Islands.
7. Mixing Personal and Business Finances
Business structures only work if they are clearly separated from your personal finances. If they aren’t, an opposing lawyer can claim that there is no true difference between you and your business, allowing them to go after the assets held by your company.
8. Not Protecting Your Home
Some people mistakenly assume that their home can’t be affected by a lawsuit. Unfortunately, that’s rarely the case. While some states do have homestead exemptions that protect a house’s value, the amount protected varies and is often far less than the actual value of a home. To avoid making this error, put your house into a land trust. This way, the trust itself is listed as the owner of your home, which affords it greater privacy, thus making it harder for a lawyer to find this valuable asset. We also employ equity stripping strategies to make your home a less attractive target.
9. Underestimating the Power of Offshore Strategies
Many people worry that offshore asset protection trusts are too risky. However, the opposite is true. Offshore trusts, when combined with a Swiss bank account, are nearly impenetrable. Their protections contrast with domestic asset protection trusts, which are easily breached by capable lawyers and ambitious judges.
10. Not Keeping Your Asset Protection Plan Updated
Asset protection strategies aren’t a “set it and forget it” tool. They need to be regularly updated to remain compliant with changing laws. To stay on top of necessary changes, work with an asset protection professional. They will continually monitor your trusts and make any necessary updates to their structure.
Work with Asset Protection Planners to Avoid These Asset Protection Mistakes
The easiest way to avoid making these common asset protection mistakes is to work with the capable team at Asset Protection Planners. We’ve been setting up offshore trusts, LLCs, and other wealth defense structures for decades, and know exactly what it takes to keep your wealth safe.
Don’t let a mistake leave the door open for creditors to take your hard-earned assets. Fill out the form below to schedule your consultation with Asset Protection Planners today!
