Asset Protection: Understanding Liability
In order to protect your assets, you have to understand what jeopardizes them – Asset Protection and understanding liability. Your assets can be categorized into unsafe and safe types. Nobody is going to slip and fall on your bank account or crash into your cash, but your vehicles, rental properties, business location, etc can be an asset that produces a level of liability that should be taken into account during your asset protection planning.

Liability Types
External – Liability that exists outside of your asset protection vehicle, such as an LLC for encumbering real estate. For example, if you have 3 homes that are all paid for that are encumbered in an LLC and you get sued personally, those assets are safe within that LLC. The legal action against you will not jeopardize the assets contained inside your LLC.
Internal – Following the same example above, let’s say that your 3 homes are owned by your LLC and somebody is injured at your property and pursues the owner legally. Now your home created the liability and the responsibility falls onto your LLC, both of your other homes are assets within the entity and are exposed.

How Many Asset Protection Vehicles Do You Need?
When planning your asset protection, you must take into account the liability that exists, the value of the asset, etc and determine what kind of vehicles you will use as well as how many are necessary. There is no one single asset protection plan that will work for every individual. If you are a real estate investor and you have 4 rental homes with very low equity, you don’t need to create separate LLC’s for each home, use 1 LLC. If you own 4 rental homes that are paid for and worth hundreds of thousands of dollars, you would then start to separate these into multiple LLC’s, again taking into account liability, risk and your situation to determine exactly what home(s) get an LLC and how to complete an asset protection plan.
Business locations produce an incredible amount of liability and if you own your building, office or shop, you would look into splitting up those properties into multiple LLC’s. The basic rule of asset protection: the higher the liability, the more precautions you need to take.

Asset Protection Risk Assessment
Asset Liability and Parenting
One of the first and greatest areas of liability is probably closest to you. Parents are 100% liable for the actions of their children. When evaluating the liability of children, your greatest risk will be when your children are of driving age. Do your children drive a vehicle registered or insured by you? One of the biggest open doors to risk is an at fault auto accident involving your child with liability in excess of insurance coverage limits. Insuring your driving child is not enough protection. More is needed for sleep-at-night peace of mind that your wealth will not come under fire from a judgment creditor. Insurance companies are masters at collection and have the financial horsepower to pursue debtors aggressively.
Huge risk exposure can come from the most innocent activities such as your minor child throwing a party at your house while you’re on vacation, or driving their friends to a movie in the family car. There are countless cases of child-related liability that have wiped out a family fortune, even owning a swimming pool increases your risk exposure.
Parents with pursuable assets can be at high risk for a devastating legal/financial blow.

Risk from Small Business Ownership
Do you own a small business? In what state? How many employees do you have? Do they drive a company vehicle? What are your HR policies? What does your company sell? Small business owners are especially at risk from internal and external liabilities associated with being an employer and selling a product or service. Where does your risk come from, and how do we protect you from potential liability? A slip and fall in a retail store, an auto accident in the company car, and product liability are just a few of the legal challenges we’ve been faced with over the years.
Carrying high insurance limits is a good start. However that is not enough to guarantee your financial survival after a massive liability exposure from employee activities, customers, your product or vehicles.

Home Owners and Real Estate Investor Risk
Homes exude risk, whether its the one you live in, or own and rent out. A neighbor tripping on newspaper delivered to your home caught one of our clients off guard and put his whole estate at risk. A vacant rental home where local kids rollerbladed down the steps to the sidewalk turned an investment into a liability nightmare overnight for a family we protect.
Insurance policies were in place for both of these examples, however it’s the job of the insurance company’s legal team to find a way out of paying. In the case of the vacant rental house, our client was insured and current with policy payments, however in the fine print the policy only covered the house with residents, after it was vacant for two months the insurance policy was void – even with current payments. Homeowners need to be especially cautious with the risks posed from owning real estate.

Medical Professionals
Medical professionals, practitioners and physicians are labeled as “deep pocket” defendants. The most commonly sued medical professionals are cosmetic surgeons and OBGYN’s. Are you a physician? Do you own your own practice? Do you own the building that houses your medical business? Owners of medical practices and buildings fall into the high-risk category right along with the doctors.
Medical malpractice is one of the highest lawsuit drivers in the medical industry. Our client doctors and medical business owners receive special attention due to the nature of their business and the history of lawsuits in their field. A malpractice judgment in excess of insurance coverage is the kiss of financial death to an unprotected individual.
From an asset protection standpoint, your autos and vehicles are an acute source of liability. Probably the most dangerous thing that you do is drive your car. Your CPA might advise you to purchase a vehicle for your business, however they would be coming from an accounting perspective and looking at the tax advantages. Sure, buy a vehicle for business use and deduct the expenses, but having the vehicle owned by your business is like opening the door for a problem.

Protect Your Assets From Driving Liability
First thing you do is buy all of the insurance your provider will sell you. Maximum coverage on you as a driver, your vehicles, everything. Why purchase all this insurance when you have an asset protection plan in place? Simple, it’s easy and inexpensive. You want to put all of the barriers between liability and your assets that you can. Insurance is easy and can cover most of your exposure for a nominal cost. You can purchase an umbrella policy for your home, autos and all of your basic insurance from the same provider which will get you a great start on mitigating the liability that exists in a very easy and inexpensive manner.
A single auto accident could result in millions of dollars of liability. Insurance in this case would your first line of defense. In the asset protection service arena, there are countless examples of a single car accident being an estate killer for an individual that wasn’t protected correctly. This has happened all too many times. Get insurance for your vehicles… and get as much as you can buy.

How Does Insurance Work?
You are buying insurance against liability. Your provider insures you from liability created by accidents and events. Each type of insurance has its limitations and you will have to have multiple policies for each type of liability. For your home, cars, recreational vehicles, business location, etc.
The first thing on an insurance company’s agenda when you file a claim is to find their way out of having to pay up. They will only honor the claim once they are forced to by the contract, but make no mistake that your insurance company is not working for you, it is working for its shareholders. There are ways to get around insurance policies and your insurance provider will be the pioneer in this when it is time to file for a claim. This is why you don’t make insurance your only asset protection initiative, you create layers to an asset protection plan from a simple insurance policy, all the way up to an offshore trust and bulletproof measures. You don’t rely on just one layer to totally protect your assets.

Asset Value
This is a huge driver in the planning process, how much are you protecting and in what form is the asset? A rental home as an asset comes with inherent risk. However an investment account or cash poses no internal risk. Nobody is going to slip and fall on your money market account, but the asset still needs to be held in a protective vehicle for liability associated with the account holders.
For Real estate, we establish protective vehicles, such as trusts and LLCs for property equity in excess of $150,000, whether that equity is in a single property, or four. As property value increases and equity builds, the asset protection plan should be updated. We often use the fewest number of legal structures necessary in order to reduce the annual costs and operating formalities of business entities (depending on the state).
The protective features come from separating assets from liability and placing them into legal structures that limit the risk. In the event of a devastating lawsuit spurred from an office building you own, the liability would be limited to the entity that owns the building, which would be separate from the entity that is used to run your business.
We strategically create asset/risk separation and compartmentalization, similar to fire doors in a building to prevent a fire in one area from spreading throughout the whole building. Risk containment could be used to describe this tactic.

What is asset protection?
Asset protection is a field of law dealing with shielding assets from claims of creditors. Asset protection should be part of estate planning and tax planning, To put it in another way,
The objective is to set up structures through which assets will be owned that make it more difficult and expensive for a creditor to reach those assets. The objective is to make the creditor’s economic pursuit so difficult and expensive that he either gives up or negotiates terms that are more favorable for the debtor.
Anyone who is concerned about their contractual liabilities or being named as a defendant in a civil dispute needs an asset protection plan. Asset protection will not make you judgment proof. An aggressive and skilled collection attorney can, with enough money and time, attack at least some assets of any debtor. The realistic goal of asset protection is to make it very difficult for judgment creditors to levy on your assets, thereby greatly increasing your negotiation leverage in settlement discussions and or simply discourage the creditor to come after you if at all.

How does asset protection work?
Asset protection is based on the basic real world principle that virtually any and every asset that you own (in you and/or your spouse’s name (s) can be seized by a creditor and or governmental agency. 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. Many people question whether even the most complicated and sophisticated asset protection plan actually defeats creditor’s claims, especially where the asset protection plan is designed and implemented close to a judgment being entered or a lawsuit being filed. Evaluating the effectiveness of asset protection depends on having realistic goals and objectives. If by asset protection a person means to become 100 percent judgment proof, then successful asset protection is difficult, especially if not done several years before problems arise. A highly motivated and well-funded creditor will eventually penetrate parts of any asset protection plan. If, however, one’s goal is to substantially improve their creditor protection and to place the majority of their assets beyond creditor attack, then asset protection success is obtainable if done early and with the help of an experienced asset protection lawyer. However, without any form of asset protection planning at all, a client subject to a potential liability or an actual judgment will lose all assets not exempt by the law. With professional and advanced asset protection, collection of a judgment can be made difficult (though never impossible) and the debtor gains substantial leverage in negotiating a reasonable settlement of a creditor’s claim. Therefore, a reasonable goal of domestic or offshore asset protection should be to position yourself in a substantially improved bargaining position with future creditors.
A proper Asset Protection Plan plays multiple roles in protecting your assets. Your plan will remove a legal opponent’s leverage by turning the tables on the way they use the legal system to their advantage. When you start creating an asset protection plan, the first thing you do is identify all of your assets, your home, your investments, properties, vehicles, bank accounts and then get the details for each one. Once you have your list of assets you start to put them into secure containers.

Activating Asset Protection
When you have an asset protection plan in place, you control all of your assets, specifically; you control the entity that actually owns the assets. You are the managing partner of a legal entity, with minority ownership. You could be a 1% owner and have 100% management control and 99% of your assets are owned by the entity that you control. Just having this in place makes you a poor target for an aggressive legal opponent. Once they find out that your assets are in a protection plan like this, they no longer have a clear path to your assets and they will know that a huge payout at the end of the line isn’t possible. This is a deterring factor for your opponent. Now the attorney who was going to get a cut of the prize sees that there isn’t a prize anymore. The playing field is level at this point. Very few individuals with a solid asset protection plan ever have to activate their plan, having it makes a difference and will deter legal opposition.
When you set up your asset protection plan, you already put all of your wealth into legal structures and you place provisions in your entities so that you can move the assets within your plan. If you are in a legal battle, you move your assets so that they are not within reach of a judge or court. A very small percentage of people will actually have to go this far with an asset protection plan activation, however for those who didn’t have one in place, would wish they could rewind the clock and simply do this before they had their estate wiped out by a legal battle.

Does asset protection discourage lawsuits?
Yes. Plaintiffs will come after you if they think there are assets they can seize. If they cannot seize your assets, or if you make it sufficiently expensive to seize your assets, they will, often, not bother to sue you in the first place.

Does hiding assets work?
We do not recommend it. Many creditors are intelligent, knowledgeable and aggressive. They will use private investigators to unearth your assets and will then seize the assets from you. With a proper asset protection plan you should be able to disclose the plan to your creditors (if under oath), and it would still effectively shield your assets from creditors’ claims. In other words, Hiding assets is an ineffective means of shielding them from creditors because a debtor would usually have to disclose his assets in a debtor exam, under penalty of perjury. Also, hiding anything in the modern world is fairly difficult. A properly structured asset protection plan allows the debtor to reveal the nature and the structure of the plan without sacrificing its efficacy.

Fraudulent Transfers:
A fraudulent transfer is a debtor’s transfer of legal title to his real or personal property to a third party with the intent to hinder, delay or defraud a present or future creditor. A fraudulent conversion is a debtor’s conversion of non-exempt real or personal property subject to creditor attack to a different type of property, still owned by the debtor, which new property is exempt or immune from creditor attack. Certain States have statues which will allow for a creditor to sue in order to overturn a transfer or conversion up to four years after a conveyance was made or an obligation incurred. *Typically asset protection planning and transfers become immune from fraudulent conveyance suspicion four years after the planning takes place. Fraudulent transfer laws are different in bankruptcy court because there are different rules under federal bankruptcy laws.

Do I need to be very wealthy in order to use these structures?
Anyone facing a legal adversity in their life deserves a chance to be represented. It doesn’t really matter what your net worth is. Your home may have a lot of sentimental value to you even if it is only worth $200,000 in the market. Your bank account with $300,000 may be your entire life savings, and would be just as important to protect as a multi-million dollar account to someone else. Even if you don’t think of yourself as wealthy, how would you feel if suddenly all your wealth and assets that you have built up and have worked so hard throughout your lifetime is all of sudden at risk to be taken away from you with just a notice in the mail and/or email (because of some issue related to your business, investments, partners, and/or some frivolous lawsuit?)
You simply have to look at the risk you are exposed to and the costs of the planning to determine whether engaging in
asset protection is for you.

Is asset protection legal and ethical?
Yes, if it is implemented in a legal and ethical manner. Asset protection relies on common corporate, estate planning and tax planning structures. No one should expect that asset protection will reduce U.S. income tax liability. Do not make the mistake of equating offshore asset protection planning with offshore tax planning. Offshore asset protection with after-tax money is legal; offshore tax evasion is criminal.

What are the statistics on the effectiveness of asset protection?
According to the records of one of our partnered law firm, the compiled statistics are as follows. “Approximately 90% of clients come to us after being sued or after something “bad” happens to them. Of these 90%, plaintiffs cease their collection efforts entirely some 60% of the time. 35-38% of the time our clients negotiate a favorable settlement with the plaintiff. The remaining 2-5% of cases, plaintiffs continues their collection efforts, sometimes successfully, but mostly unsuccessfully. While past performance is not a guarantee of future results, a well structured asset protection plan should be extremely effective.”

Is asset protection complicated?
No. While some unscrupulous promoters aim to sell their unsuspecting clients over-complex structures just to be able to charge more money, complexity does not necessarily equal more protection. Sometimes something as simple and inexpensive as a limited liability company may be your best bet and all that you need depending on your business and asset situation and/or personal situation.

Is it ever too late to plan?
No, 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. We will make that determination on a case by case basis. Generally, even if you are planning after the fact (i.e. going thru a lawsuit), you can still achieve very favorable results and protect your assets.

Is asset protection expensive?
It varies, but generally no. 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 to use domestic structures. 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. For example, you can hire a Nevada promoter to set up an LLC and pay $300. You will be very happy with that price until you realize that you needed a trust and not an LLC and you may now lose your assets. Do not shop for asset protection based on price, shop based on competence and knowledge.

How do I pick the right asset protection attorney?
When picking your attorney, make sure that asset protection is the attorney’s primary practice area. Make sure that the attorney has tax and estate planning expertise, because tax and estate planning issues are always implicated and related issues in any asset protection plan. Finally, make sure that the attorney has experience defending his or her asset protection structures in court. We already have partnered access to a list of proven, effective, and experienced Asset Protection attorneys to review, structure, implement, and defend your asset portfolio(s) whichever the case maybe.