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Asset protection (sometimes also referred to as debtor/creditor law) is a set of legal techniques and a body of statutory and common law dealing with protecting assets of individuals and business entities from civil money judgments. The goal of all asset protection planning is to insulate assets from claims of creditors without concealment or tax evasion.
Asset protection consists of methods available to protect assets from liabilities arising elsewhere. It should not be confused with limiting liability, which concerns the ability to stop or constrain liability to the asset or activity from which it arises. Assets that are shielded from creditors by law are few (common examples include some home equity, certain retirement plans and interests in LLCs and limited partnerships (and even these are not always unreachable)). Assets that are almost always unreachable are those that one does not hold legal title to. In many cases it is possible to vest legal title to personal assets in a trust, an agent or a nominee, while retaining all the control of the assets. The goal of asset protection is similar to bankruptcy, and the two practice areas go hand-in-hand. When a debtor has none to few assets, the bankruptcy route is preferable. When the debtor has significant assets, asset protection may be the solution.
Nearly 70,000 civil lawsuits a day are filed in the United States. The highest number of suits filed, target middle to upper class Americans with less than one million dollars of net worth. Asset Protection is not just for the "rich", as a matter of fact, it is all the more important for those who have less. Consider if a multi-millionaire is served with a $500,000 judgment. That person could pay the penalty and, perhaps, not have a substantial effect on his or her lifestyle. Most individuals are not as fortunate. Therefore, a half million-dollar judgment could be most of the wealth one has grown, thus, a considerable impact on one's lifestyle.
In cases where significant sums are involved, asset protection planning often includes setting up a series of trusts, partnerships and/or off-shore entities to hold legal title to your assets. A future creditor who recognizes how difficult it would be to collect on any judgment it may win, might decide it makes little sense to pursue a claim, or be willing to settle for pennies on the dollar.
There is a very sharp dividing line between "legal" asset protection planning on the one hand, and actions to defraud creditors, which are criminal, on the other. For that reason it is essential to have competent financial advisors and/or an attorney to guide you through the process. We urge all visitors to Financial Dream Team to beware of some operators, sometimes posing as foreign trust companies, that market packages of services that they claim will protect your assets. Some of them are criminal enterprises that will steal your assets. Some are fast buck artists that will leave you with no protection. Some will open you up to serious criminal charges. Many will do all three - take your money, leave you with no protection, and set you on the road to prison. Asset protection planning is also planning to keep your wealth out from under prying eyes. If your assets are awarded to a creditor, in the event of a judgment, your protection plan can keep your assets in tact and typically keep you in control of your property.
Asset protections plans work, but generally, are much more effective for debtors who have the foresight to set them up in advance of a lawsuit. In situations where there is a variety of assets involved, your plan may consist of several legal structures, both in your home country and offshore. It is crucial that you proceed with an experienced and qualified professional, such as our financial advisors: accountant's and financial planners, estate planners, attorneys and asset professionals.
Working in concert with a professional such as a Financial Dream Team advisor or an attorney, we can help perform a risk analysis for your assets. We analyze your current holdings as well as your liability and likelihood of future exposure, accounting for your existing business ventures, occupation, and additional liability.
Your exposure is analyzed along with the nature of your assets and overall size of your estate. We also consider your family situation and your estate planning needs in an asset protection plan.
In many cases, incorporating a business or placing real estate and liquid assets inside of separate limited liability companies will increase the level of protection to add comfort. This is because there are provisions in the law such that when you, as an LLC member are sued individually, assets inside of the LLC can be protected from being taken away from you.
Experienced professionals create your plan based on your entire financial, family and risk scenario. If you are presented with packaged solutions that are created before your situation was known, it is a sign that your provider is not offering the personalized service asset protection planning requires. We urge all of our clients to ensure that they pursue qualified and helpful professionals who will educate them on all of their options, regardless of what the provider is selling.
An asset protection plan is stronger the longer it has been in place. Creating a plan after you need it is a trickier process; however, it can still be accomplished. Having an asset protection plan usually allows you the same or similar control over your assets, capital, real estate, etc - while removing the risk that it can all be taken away in the event of a lawsuit.
One of Financial Dream Team's clients, let's call him James, had 11 rental properties and a personal residence. He was concerned about litigation and losing his real estate portfolio. For asset protection purposes, we established Limited Liability Companies (LLCs) to own the rental properties. We then established Limited Partnerships (LPs) to place 2nd mortgages against each property. When James was sued for a tenant injury on one of his properties, the real estate was protected and the opposing attorney saw little chance of payoff. The lawsuit was eventually dropped. Note: this process is fairly complex and should not be done without a competent financial advisor.
By exploring some of the solid legal structures available, you can quickly place your assets into a financial fortress that is virtually judgment-proof. We analyze the types of assets that you need to protect. We also consider both exempt and non-exempt assets during planning. Your personal cash is a quick target as is your real estate. In most cases, a significant portion of one's stream of income is subject to seizure. Each state is different in determining which property is exempt. In most cases there are limits, depending on the type of property, to the amount that may be exempt. Some personal effects could be exempt up to a set dollar amount while 100% of the value of your pension is usually exempt. Check your state's law to discover with what you need to be concerned. When you call us, we also have state-by-state reference guides that may further assist you. In those cases your non-exempt property can be turned into exempt property. The reality is that relying on exemptions alone is not a sufficient way to protect your assets. If you are exposed to any reasonable level of risk to warrant this type of planning, more sophisticated methods should be explored such as corporations, LLC's, offshore companies and trusts.
In some situations your asset planning can blend with estate and tax planning. Family corporations, limited partnerships and well-thought-out gifting of property to children are all forms of modifying your estate, tax scenario and available assets. In many cases a comprehensive plan involves accountant's and financial planners, estate planners, attorneys and asset professionals.
Financial Dream Team advisors offer a personalized approach to your planning. We take our clients by the hand and guide them while informing and educating on all of the available options so that confident decisions are made throughout the process. We have the training and experience in assisting clients in these matters for many years.
1. Jacob Stein (Winter 2007). "The Importance of Trusts in Asset Protection". California Trusts and Estates Quarterly, Volume 12, Issue 4, p. 17-25. http://www.maximumassetprotection.com/publications/articles.html. Retrieved September 24, 2010.
2. Richard T. Williamson (2008). The Real Estate Investor's Guide to Corporations, LLCs & Asset Protection Entities. Kaplan Publishing. p. 43. ISBN 9781427797025.
3. Jacob Stein (September 10, 2010). "McCourt Divorce Shines A Light on Asset Protection". Los Angeles Daily Journal. http://www.maximumassetprotection.com/publications/articles.html. Retrieved September 27, 2010.