Your home and primary residence is probably one of your most important assets. It is not only the value but the security it provides; the sense of family togetherness, community, safety. If you cannot satisfy a large judgement, a big item on the list of creditor targets is the family home – your personal residence. If you do not have anything else that can satisfy a financial obligation, your home is often the asset with the most meat on the bone. So, what do you do to protect your home from lawsuits? That is what we will discuss. Here’s how to incorporate your primary residence into an asset protection plan and protect yourself from being a lawsuit victim.
Some states, such as Texas, Florida, Iowa, South Dakota, Kansas, and Oklahoma have homestead laws that can protect all of the equity depending on the size and location of the property. On the other hand, New Jersey protects none of the equity. Whereas a California home may have some homestead protection, the higher home values in this state often leaves substantial equity exposed. Most states protect only a small portion of the equity compared to the average home value. So, let’s discuss some actions you can take.
Here we create the first layer of asset protection and that is creating privacy of ownership for your primary residence. This will be a publicly recorded document showing who owns the property. We transfer title to your home to the name of a trust. There is no public document that says who the beneficiary of the trust is. That is the first element of protection – privacy of ownership.
Next, we make the beneficiary of the land trust, your living trust. Here we are affording you the ability to state where your asset goes to upon death. This is where we incorporate Estate Planning into your Asset Protection Plan. With this arrangement, you are able to avoid probate expenses and possibly some estate taxes.
Speaking of trusts. Many in the latter half of life effectively use the Qualified Personal Residence Trust or QPRT to protect their homes. Placing your home in this type of trust creates a separate estate that can protect your home from your judgment creditors. You can read more about this tool by clicking the link above.
Finally we implement a deterrent into the plan. This is how to make your property worthless to creditors. This is called equity stripping. We set up an LLC that you own privately. We establish this LLC in Wyoming or, better yet, in an international location such as the Caribbean Island of Nevis. That is, a Nevis LLC. The Nevis LLC records a mortgage (or deed of trust) against the property. This is a home equity line of credit type of mortgage. This LLC also has a bank and/or investment account to protect your liquid assets.
We then set up an asset protection trust. Again, the strongest protection is beyond the reaches of your local courts. Cook Islands and Nevis have two of the most reputable and effective sets of asset protection trust statutes. The trust owns the aforementioned LLC.
When the “bad thing” (lawsuit, divorce, trumped-up property violation) shows up we go into phase two. In phase two we have an international institution that buys the mortgage against your home for cash. This places the cash in your offshore trust in a “you can’t touch it” account. It goes without saying, the international institution will not risk someone running off with the money on a foreign (to them) property. It is academic, anyway, because you could not automatically touch the cash represented by your equity beforehand. Once you sell or refinance, this will free up accessible cash.
So what have we accomplished? Now you have a privately held piece of real estate that is inside an estate plan that has zero equity for a creditor to take (for public records purposes). Without this strategy, litigators would use your available assets as tools for their benefit. They can use the law to take the assets that you worked so hard for. That’s how they satisfy their own appetites. They seize what people like you have earned. Then they use it to put food on their own tables. Your fear of losing your wealth is the weapon they use to control you. On the other hand, if you have nothing to lose, they have nothing to gain by pursuing you.
There are a number of different ways to protect your home and other assets. This is an illustration of a common strategy we employ that has effectively protected homes for hundreds of clients. Each individual’s strategy will vary depending on their personal needs. Use the phone numbers or contact form on this page for more information.