HOW TO PROTECT MY ASSETS FROM LAWSUITS AND CLAIMS.
There is no one structure fit all in asset protection planning. There are literally dozens of structures that can be used to protect assets. Which particularly structure is used in any given case depends on various factors: aggressiveness of your creditor, types of assets being protected, and whether the planning is being done in advance or at the last minute.
What is asset protection?
It’s estimated that 50,000 lawsuits are filed every day. Asset protection is a legal structure, arrangement to shield your assets from claims of creditors. Asset protection is beyond the scope of estate planning or tax planning, it’s simply protecting assets from financial predators.
How does asset protection work?
Asset protection is based on the basic principle that virtually any and every asset that you own can be seized by a creditor. Any asset that you do not own cannot be seized from you. Consequently, asset protection aims to remove you from the legal title to your assets, but allows you to continue controlling your assets and enjoying the economic benefits of your assets. The ability to achieve privacy.
What is the effectiveness of asset protection?
Assets protection is like buying insurance policy on your home, car you buy the coverage just in the event something bad happens. You can not protect assets after you get sued or after something "bad" happens to you. You plan ahead a well structured asset protection plan should be extremely effective.
It is never too late to plan, but there are exceptions. While one needs to be mindful of the fraudulent transfer laws, one also needs to consider the practical implications of planning. Often, even if a lawsuit has been filed against you, it is not too late to plan. Your legal counsel will make that determination on a case by case basis. Generally, even if you are planning after the fact, you can achieve very favorable results and protect your assets.
How complicated to create an assets protection plan?
No. Complexity does not necessarily equal more protection. Sometimes something as simple and inexpensive as a limited liability company, Family Limited partnership or certain type of trust may be sufficient to provide you with the assets protection you need.
How expensive is asset protection?
It varies, and it is certainly not as expensive as losing all your assets to a creditor. It is always cheaper to plan ahead of time, and it is always cheaper. Costs and fees will also vary depending on who you retain, how aggressively the plaintiff will pursue your assets, to what extent you want to go to protect your assets. Do not shop for asset protection based on price, shop based on competence.
I have insurance, do I need asset protection?
Yes. The vast majority of individuals have insurance. Yet, they still need assets protection. While insurance will cover most claims, it will not cover all claims, and you may have insufficient policy limits. Everyone should have umbrella insurance, but is very difficult to get coverage in excess of $4 million. Many claims will exceed that amount.
Is asset protection legal and ethical?
Yes, if it is implemented in a legal and ethical manner. Tax lawyers had been using this technique for many years as a convenient way fro reducing family income, estate reduction plan and for asset protection. Assets protection relies on common corporate, estate planning and tax planning structures.
Does a living trust protect my assets?
No. Living Trust (revocable living trust), is designed to avoid guardianship and probate. A creditor can force you to revoke the trust. The assets then revert to your name, and the creditor will then get them from you. In many states, the creditor can go after the assets of your living trust directly
I have a corporation does my corporation protect my assets?
No. If you own valuable assets through a corporation a creditor will be able to seize the stock of the corporation from you. Once the creditor owns the stock, the creditor can liquidate the corporation and get its assets. Any corporation would do a poor job of protecting your assets. Instead, use a limited liability company or a limited partnership.
How about simply give my assets to family members?
Yes you can, but it will not be an effective asset protection tool. When you give your assets to family member or anyone else, you simply lost control of the assets and the chances you will never get it back, also you must consider the gift tax burden, plus any intelligent creditor would challenge a gift to family members as a fraudulent transfer and set it aside, allowing the creditor to reach the transferred assets.
What are the tax consequences to asset protection?
Most properly structured plan files an annual informational tax return setting forth its income and expenses, but doesn’t pay tax it’s a pass through entity, no double taxation. This means that your bottom line tax liability should not change. All structures used in asset protection are either disregarded for income tax purposes, or are flow-through entities like partnerships or S corporations.
Can I keep control over my assets?
That depends on a multitude of factors. Often times the answer is yes. Sometimes, you may have to give up control, at least for a period of time, and trade it off for increased protection.
How effective is a prenuptial agreement?
Very. A prenuptial agreement is one of the most effective asset protection tools available. The separate property of one spouse is not reachable by the creditors of the other spouse. Because a prenuptial agreement cannot possibly be a fraudulent transfer, it can never be challenged by a creditor. Simply protects both spouses from each other's creditors.
What is a transmutation agreement?
Married couple with substantial assets should consider a transmutation agreement. This is a simple written agreement that allows spouses to easily convert their community property into separate property. The transmutation agreement does not address divorce, alimony or any other issue. It simply ends community property and creates separate property.
Should my asset protection trust be irrevocable?
Yes. If you have the ability to revoke a trust, like you do with a traditional living trust, a creditor can force you to do so, and then will get your assets. An irrevocable trust is treated as a separate legal person. If you have no visible control over the assets of the trust, your creditors will not be able to reach the assets of the trust. In many states an irrevocable trust simply means that no one can force you to revoke the trust, but you retain the ability to do so, at your discretion.
How do I retain control over an irrevocable trust?
There are a number of ways. Most importantly, you should appoint a friendly trustee. A friend or a family member who would look after your best interests and who would comply with your requests.
Is my IRA protected?
Not under federal law, and not under the laws of many states. For example, California will protect the IRA only if you have no other assets, and even then the protection is very limited.
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