Presented as an FAQ format, this guide will help you understand the steps and actions you should pursue if protecting your personal assets has become a concern.
What first steps should I take toward protecting my personal assets?
- The first thing to do is to start planning well in advance. You want to plan before a claim against your assets occurs.
- Be sure to have plenty of insurance. It is a great first line defense and the insurance company pays your legal fees.
- Find an advisor who has experience in estate planning and asset protection.
- Give some thought as to whether you want just domestic planning or a combination of domestic and offshore.
What kind of structures should I use to protect my assets?
- This is where a planner earns his keep. He or she can assist you in deciding between various kinds of revocable or irrevocable trusts and Limited Liability Companies.
How do I tie them all together?
- This is where the “art of asset protection planning” really comes into play.
- Your planner needs to be able to structure the entire set up so that it is primarily tax neutral, achieves your estate planning goals, and holds the creditors at bay.
- The structures can be complex or simple, but the bottom line is they must discourage a future creditor from attacking your assets.
Will I lose control of my assets?
- This very much depends on the structure and how it is set up. And if you have too much control, then a creditor may gain access. If you have too little control, you may not feel comfortable. This is another example of how “the art of asset protection” comes into play.
Can I just give assets away to my relatives to protect them?
- Do people do it all the time? Yes. Does it work? Most likely not. Here are many different things that can go wrong with this scenario:
- Your relative gets sued on a separate issue and their creditor gets your assets.
- Your relative gets caught up in contributing to a fraudulent conveyance (now called a Voidable Transaction) with your lawsuit.
- The IRS wants you to pay gift taxes because you transferred assets to a non-spouse.
- Gift taxes can be due again when the non-spouse transfers the assets back to you.
- In order to avoid gift taxes on a transfer, you may end up using your lifetime exemption but then that means it is not available to use later in life for your children.
Is there one form a personal asset protection that is generally superior?
- Yes. Normally, personal asset protection is best done with some form of trust. Trusts have long been used for estate planning and asset protection purposes, and there is a large body of law that recognizes this.
- There are many different types of trusts that can be set up, such as pre-inheritance trusts, where assets are transferred in advance to your heirs to other forms of hybrid irrevocable trusts.
What about hiding and concealing my assets?
- This is a popular misconception. However, if you are questioned by a judge or if you are in a debtor’s examine, do you really think it makes sense to lie? Is a judge going to be responsive to someone who says that they just do not know what happened to their assets? Yes, there are many advisers who recommend this, but it is just plain foolishness.
What do I say when questioned about my assets?
- This is where good planning comes into play. You want to be able to tell the truth, tell what you did and then depend on the structure to hold. This means that the structure must make sense.
- Answers such as “I lost everything in Vegas,” and “I have no idea what happened to my condo in Vale,” just will not survive the believability test.
- However, if you have a good solid estate plan that also strongly limits a creditors ability to gain access to your assets, then you can answer honestly and depend on the structure to hold.
What is the best that I can expect from asset protection planning?
- This is one of the most common questions we are asked. There are three likely outcomes:
- You do not have to pay anything because the creditor cannot break through or does not try to break through your plan.
- You have to pay 100 percent on the dollar because your plan was poorly implemented or done too late in the process and is overturned.
- The most likely scenario is that you will pay less than you otherwise would have to pay because you settle. Your creditor realizes that trying to break through what you have done is going to be expensive and problematic. You just want to get your life back to normal and realize that settling for less than you otherwise would have to pay is a great outcome.
What about putting friendly liens on my personal assets?
- Friendly liens can be done if they are done correctly. Many times the liens are put on the property with no reason for them to exist and they are controlled by others.
- A properly structured friendly lien with a business purpose can and does make sense. It is all in how you do it.
- Be careful about letting others control your liens on your property. If the company that set it up goes out of business then getting control back, while not impossible, can be lengthy and expensive.
- Talk with us about our friendly liens, how they work and how you can be in control. With our unique capitalization note process, the lien “makes sense” and will work.
Additional notes and concerns:
Do you own your home free and clear? Many people do and they are rightfully proud of that fact. But that just makes you a target for the greedy. Anyone can search public records and find that you have no liens on your real estate. Then it is an easy matter to file a lawsuit for various bogus reasons and go after that equity. One of our clients had a neighbor file a lawsuit against him for trimming the hedges between the properties. The neighbor won a $45,000 judgment against him. The hedges had grown back by the time the neighbor got the judgment, but that did not matter.
A properly structured friendly lien may have assisted this prospect in not being sued. That way when the neighbor researched the property (which he admitted that he did before he filed the lawsuit) there would have been no equity in the property worth pursuing. Not all friendly liens are equal. Many of them have no basis for being and are controlled by some third party you may not even know.
Be sure to call us to find out how to structure a proper lien on your property. And you will be able to rest assured that the real estate is safe from predatory practices.