Asset Protection
One of the burdens of having success is learning to deal with an increasingly litigious society. There are over sixteen million (16,000,000) lawsuits filed each year in the U.S. That is more than one suit filed every two seconds. Since poor people are typically not the ones being sued, you must consider that the question is not, “Will I be sued?” but rather, “Am I prepared for WHEN I am sued?” With proper planning assets can be protected from creditors, predators, and divorcing spouses. Your creditors will find that your assets are so difficult to touch that they are often willing to take whatever insurance is offered and go away.
I had an interesting conversation with my oldest son. We were talking in general about clients who have invested in the Iraqi Dinar and some of the things I was doing do safeguard their assets. What really got me was his comment, “I guess that’s one example of the rich getting richer and the poor getting poorer.” His comment bothered me. While it is true that the work I do is aimed at protecting (even legally hiding) the assets of wealthy clients, I want people to know that asset protection is made available, in one form or another, to EVERYONE. All you have to do is consider carefully what level of protection applies to your life and circumstances.
There are five tiers of Asset Protection Planning:
1) The law of your jurisdiction (State).
2) Insurance
3) Business Structures
4) Domestic Asset Protection Trusts
5) Foreign Asset Protection Trusts
1) The laws of your state. The laws of your state provide differing measures of Asset Protection. Wichita residents avail themselves of the laws of Kansas which have some very favorable asset protection laws. For instance, in Bankruptcy or a creditor claim your “homestead” is protected and can not be taken from you. This includes a home of any value as well as any contiguous land up to one (1) acre inside the city limits or one hundred sixty (160) acres of contiguous land outside of the city limits. Another example is the bankruptcy code that allows you to extinguish debt while keeping some assets. The laws of one’s own state provide asset protection to all citizens regardless of amount of assets or income levels. Different states have different laws some are more favorable than others. While Kansas law which is not quite the best, the laws definitely lean in favor of the little guy. There are only a couple of states with any laws superior to Kansas for Asset Protection purposes.
Often attorneys will use laws of other jurisdictions to increase their client’s protection. However, recent case law indicates that is less likely to be effective in protecting assets. However, for clients who want a little more than Kansas can offer, it is still possible to utilize the laws of a couple of other jurisdictions to mask or hide your ownership of assets. Often this simple step will prevent lawsuits because you become less of a target. If you do end up getting sued, the laws of Kansas would most likely apply regardless of the jurisdiction you claim for your choice of law.
2) Insurance. If you drive a vehicle you are required to have insurance. If you have a mortgage on a home you are required by your mortgage company to maintain insurance. Most people and most business carry health and liability insurance outside of what they are required to by any law or contract. Why is that? It is because they wish to safeguard their assets in event of a disaster or other unfortunate event.
Most people do not think of Insurance as Asset Protection. However, that is EXACTLY what it is. If you have insurance and get in a car wreck, the insurance covers your liability so you don’t have to liquidate assets to pay a judgment. This is the second tier of asset protection and people take advantage of it without ever realizing what they are doing. This is the first shield any individual or business owner should wield to protect their assets. I had a recent asset protection client tell me that he spends about $200,000 a year in insurance premiums for the apartment buildings he owns. Take a lesson from the wealthy and use insurance wisely to protect yourself and your loved ones.
In a law suite, if you have developed one or more of the following asset protection techniques and your assets are difficult to reach, insurance can actually take on a completely different role. An insurance settlement becomes the carrot on the stick. Often, knowing that they will be lucky to get anything else out of you, they will take what the insurance offers and go.
3) Business Entities. The next tier of asset protection is the proper formation of business entities. These can take various structures with varying degrees of asset protection. This is where, for Asset Protection, Wichita clients need to start educating themselves. While this is the most often used and one of the most effective asset protection strategies when properly employed, I believe it is the least understood by those who could be taking advantage of its protections. This is one area where it is not the amount of wealth, but the amount of education that separates those with proper asset protections and those without. Business Entities are the primary “go to” technique used for asset protection by both the wealthy and the business man just scraping by. It will serve either of them well and it could be argued that the struggling businessman needs it more than the wealthy one. Really, how much can the struggling business man stand to lose before he is forced to close his doors and sell off his families belongings to survive.
Asset Protection clients would do well to understand that this is not something to be trifled with. Legal documents are tools of a trade the same as a surgeon’s scalpel. If you go to some “do it yourself” solution to prepare an LLC, you could be placing your assets in great jeopardy. You know you can not perform surgery. If an online service were to claim that they could guide you through the process would that make you comfortable enough to make the first cut? An LLC should be thought of no differently. There are things a knowledgeable and experienced attorney will understand that a lay person will miss. Yes attorneys cost money but it should be thought of as an investment in your security the same way insurance is thought of.
4) Domestic Asset Protection Trust. Placing Domestic Asset Protection Trusts in the fourth tier should not be mistaken as an implication that they are superior to the use of Business Entities. However, one does not usually use a Domestic Asset Protection Trust unless business entities have already been utilized. Typically they are combined in a joint structure. This is also the first tier where people of modest means usually do not tread. Domestic Asset Protection Trusts do not typically make sense unless a lot of assets are involved. Typically they will not be put into place unless the need is great or there is enough money involved that the expense is not a barrier to their use.
Very few states allow asset protection trusts to be created for your own assets. Therefore, if a Kansas resident wanted to utilize one it would have to be set up some place like Nevada, Wyoming, or Alaska. Given recent case law making it difficult to gain protections from other jurisdictions it is essential that great care is taken when structuring the assets held by such a trust.
5) Foreign Asset Protection Trusts. We have all heard stories of people putting money “off shore.” Those tales are both good and bad. The good ones typically are using some form of off shore trust for their Asset Protection. These are known as Foreign Asset Protection Trusts. This is the best protection money can buy and it usually takes quite a bit of money to buy it. However, even the rich who utilize Foreign Asset Protection Trusts typically only use them for a small portion of their total assets. For the rest they use the every day asset protection available to the rest of us.
Conclusion
As you have read I am sure that you have seen how asset protection is already playing a role in your life. If you take the time to think carefully and plan wisely you can protect your assets against whatever hazards might befall you and your family. While you should understand that NO PLAN IS BULLET PROOF, having asset protection in place makes it much more likely that will weather what life throws at you with most of your assets in tact.
Contact us to schedule an Asset Protection Consultation today.