Asset Protection Strategies

i_strategiesAsset-Protection-StrategiesIn most cases, laws of the state where you live govern the transfer of property to heirs, so ensure that you check state laws for any additional estate, inheritance or death taxes that may be imposed on your property. Here are some strategies to guide your efforts:


Create an Estate Plan, Regardless of Net Worth 

Most people think they have to own lots of assets, have high income or net worth in order to have an “estate.” This simply isn’t so. As long as you are alive, you have some estate planning and asset protection concerns. It’s true that the higher your net worth, or income, the more technical your needs may be, but everyone needs at least a basic plan.


Begin Estate Planning/Asset Protection by Getting Organized

A good filing system and financial statements are a great beginning. If something happens to you, someone needs to know what you own and who you owe. These matters must be taken care of by someone.

If you’re organized to begin with, the responsible individual can, after your death, begin the process of putting the pieces of your plan into effect.


Recognize the Three Stages of Any Solid Estate Plan

Stage one in your estate plan occurs during your lifetime. Some circumstances that require planning are:

  • An accident or disease that leaves you mentally or physically disabled
  • A good investment or business opportunity that balloons your net worth or income
  • A trip out of the country, and the unique risk factors that go along with travel abroad

Good estate planning shouldn’t be just for when bad things happen but when good events occur as well.

The second stage of estate planning concerns your death. When you die, there are income tax and estate tax concerns, plans for the rearing of your children, for the distribution of your assets-either at one time, or as a definite pre-planned distribution schedule, and finally, arrangements for dealing with and/or avoiding probate.

Finally, stage three is undoubtedly what we receive the most questions and comments about asset protection.


The Wealthiest People Everywhere Own Nothing and Control Everything

A simple fact of ownership is that if you have something worth getting, there is going to be the chance that someone will try to take it from you. Without protection, events like these below could leave you penniless and in deep debt.

  • Divorce (currently running about 52% as of this writing)
  • An injury or negligence claim (justified or not, you can go broke defending yourself)
  • Catastrophic medical bills
  • Claims from creditors should your business fail
  • A “frivolous” lawsuit filed by a former partner or for that matter anyone

And the list goes on and on. You obviously can’t control events, but you can limit your financial exposure through impregnable asset protection. The direct amount of risk to you and what protections you may need depends on the value of your assets and your specific instructions. A net worth of $50,000 is less vulnerable than a multi-million dollar portfolio. A celebrity, public figure or physician may need a more sophisticated plan than a lower profile citizen. Here are a few basic strategies that will enhance any asset protection plan.


Minimally Start with a Corporation or L.L.C.

The first line of defense is to take steps to reduce the chances of being sued personally in the first place. For example, when you buy a rental property (best the corporation or limited liability company, L.L.C.) your tenant most likely does not own a home or have substantial assets. Therefore when someone is injured in your renter’s residence, the deepest pocket (maybe the ONLY pocket) most likely will be yours.

Winning strategy – don’t give them a reason to sue you but always the entity (defined as a legal way to hold an asset, i.e., a corporation or L.L.C.). In other words, “get every asset out of your name” and into the name of the entity. Transferring your real estate properties and business(es) into another entity creates another “layer” or firewall of protection between you and the public and makes it more difficult to get you personally into court. This strategy should be used as one layer of a multi-layer defense.


Prepare for the Worst-Activate Your Plan Before Trouble Hits

“When” you do is just as important as “What” you do. For example, to protect your assets from harm’s way, you may need to structure purchases (property, a business, equipment, etc.) and how you hold them (personal, business, L.L.C.’s, trusts, corporations, etc.) in specific ways. You must have these protections in place BEFORE a summons is served.

Avoid fraudulent transfers. Again, IF someone makes it past your other layers of protection and gets you into court-the exact date an asset is transferred into another name is a vital key to your defense.

For example, suppose you have all your properties in your personal name. You encounter a sticky situation and someone threatens to sue you. AND THEN…you run out and transfer all your assets into a LLC or other entity. If by chance you wind up in court, a judge would most likely view that as a fraudulent transfer. Simply put, if it looks like you transferred the asset just to keep someone from collecting against it, the asset more than likely will revert back to being held in your name.

Watchwords to the wise, transfer assets during what is known as “still waters.” In other words, there are no events in your life that are traumatic (a bankruptcy or divorce) or that later might be construed as your motive for the transfer in the first place.


Avoid Costly Mistakes-It Takes a TEAM!

One of the biggest revelations in life is NOT recognizing what we already knew but what we didn’t know and where to go for the answers so that ultimately we could be more productive faster. That doesn’t mean you need a four year degree in every aspect of asset protection and estate planning but you will need access to the individual or team who knows. And your choices are to either build a team or infiltrate an existing one.

Why? You’ll find that you simply don’t have the time and energy to do a lot of research or check out the consequences of every financial decision in life. When a crisis arises, having an experienced live person to consult for immediate advice is an essential part of your ongoing protection plan.


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