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What is Asset Protection?

Protecting Assets From Lawsuits and Claims

Asset protection is the specialty area of the law that addresses key financial concerns.

What are the best ways to organize one’s business and financial affairs to minimize liability and lawsuit risks? What options are available to insure that accumulated wealth and future earnings are insulated and shielded against potential loss? What are the advantages of an asset protection law firm?

Asset protection typically begins with a through evaluation of the business and personal liability risks faced by our clients. Much asset protection planning is devoted to organizing and reorganizing business structures and advising clients how to take full legal advantage of the limited liability protection available through the proper and creative use of available strategies.

Accumulated personal assets, including business and real estate properties and other investments should also be protected from liability risks to the greatest extent possible. Sound estate planning principles should be applied to create an integrated personal plan to minimize business risk and protect personal assets from sources of potential liability.

Our site is intended to provide a detailed and comprehensive discussion of the important legal and practical implications of asset protection planning. In the Asset Protection Law Library and in Asset Protection Articles the latest cases, legislation and issues are presented. What is asset protection? Why is the duty of confidentiality important for an asset protection lawyer? Who needs asset protection? What strategies have we developed for our clients and what results have been achieved over the years? These are some of the questions specifically addressed.

Asset Protection Planning

Lawsuit protection for rental real estate

The key to properly structuring real estate activities is understanding the concept of inside and outside liability.  Inside liability is a lawsuit risk that is produced by the property itself. That is, something associated with the property may cause you to be sued. A tenant can be injured on the property or you might have a dispute with a buyer or seller.  The first part of the asset protection planning is to insulate and shield you from any liability arising out of the property so that you don’t expose your other assets to this lawsuit risk.

What is the best business entity to protect you from lawsuit risk?

The first consideration in structuring a sound asset protection plan is deciding which form of entity should be used to operate your business. The possible choices include general and limited partnerships, sole proprietorships, trusts, limited liability companies, and corporations. Each has different legal characteristics, tax attributes, and asset protection features. The right combination is based upon the nature of your business, whether you will have outside investors, the degree of liability protection needed, and which entity creates the greatest tax benefits.

How to protect your home from future liability claims

The key to protecting the home is to limit your rights in some manner so that there is nothing legally available which can be reached. If your ownership of your home changes from full and complete to something less, your interest may have no value to a prospective creditor.

How should we limit your rights in an acceptable manner? We say acceptable because it is certainly easy to fully protect your home if you want to give it away to your children and not live there anymore. That’s perfect asset protection but in most cases it would not be a satisfactory solution. Maybe we can accomplish what we want using less drastic measures.

How to shield business assets from lawsuits

The first consideration in structuring a sound asset protection plan is deciding which form of entity should be used to operate your business. The possible choices include general and limited partnerships, sole proprietorships, trusts, limited liability companies, and corporations. Each has different legal characteristics, tax attributes, and asset protection features. The right combination is based upon the nature of your business, whether you will have outside investors, the degree of liability protection needed, and which entity creates the greatest tax benefits.

Why asset protection stops a lawsuit threat before it begins

A fundamental point to consider in developing an asset protection strategy and maximizing privacy is how does a potential plaintiff find out whether you have enough money to make you an attractive lawsuit target? Thanks to modern data collection, anyone can find out everything they need to know.

How to keep what you own private and protected

The Privacy Trust is a descriptive name for the legal strategies designed to achieve financial privacy goals-a legitimate concern for many individuals. The Privacy Trust successfully conceals ownership of bank and brokerage accounts, the family home, rental properties, and interests in other entities.

What are the advantages and consequences of offshore trusts?

Offshore Trusts are often used as a component of a sophisticated asset protection plan. There are three planning structures typically established by a client to obtain the advantages of Offshore Trust protection.  For shorthand purposes these different trusts can be referred to as the (1) A Traditional Offshore Trust; (2) A Safety Valve Offshore Trust; and (3) An Offshore Conversion Trust. The relative advantages and disadvantages of each are outlined below.

More than nineteen million lawsuits are filed in this country every year. Business owner and professionals face unpredictable and seemingly random jury verdicts and awards. Similar facts may produce dramatically different outcomes–$1million in one case and $10 million in another. In addition to the hazards of professional practice, lawsuits arise because of unforeseen business problems, medical expenses, unsubstantiated claims, divorce, IRS disputes, accidents and a host of other financial disasters.

The Advantages of Asset Protection

A properly designed Asset Protection Plan accomplishes your most important objectives:

  • Use of the most favorable asset protection laws available.
  • Keeping property free from liens and attachments.
  • Maximum privacy and protection for accumulated wealth and future earnings.
  • Enhanced legal negotiating leverage.
  • Protection against liability which exceeds insurance coverage.
  • Insulating rental properties from inside or outside lawsuit liability
  • Protection of retirement savings.
  • Protection of business assets and accounts receivable from claims.

While estate planning usually involves issues associated with preserving and passing property to family members, asset protection deals with the immediate need to protect assets during lifetime.

Asset Protection Strategies

There are many legal asset protection plans which can accomplish your goals. Here we will focus on seven important asset protection strategies that form the foundation of most plans.

Domestic Asset Protection Trusts

In 2017 Michigan became the 17th state to allow property and savings to be sheltered from lawsuits and creditor collection actions.  These states and others which will follow provide significant planning tools through Domestic Asset Protection Trusts for individuals and businesses owners who wish to protect assets and limit potential exposure to liability risks.

Offshore Asset Protection Trusts

Assets such as savings, real state and interests in other entities and businesses are transferred into an asset protection plan structured to accommodate these assets. Ownership of the domestic entities is transferred to the Offshore Trust or the Offshore Trust can serve as Beneficiary of any domestic trusts  which are created.

Family Limited Partnerships

A Family Limited Partnership is a type of limited partnership that is designed specifically to hold and protect family assets.  An FLP consists of one or more general partners and one or more limited partners. The same person can be both a general and a limited partner, as long as there are at least two legal persons in the partnership. The general partner is responsible for the management of the affairs of the partnership and has unlimited personal liability for all debts and obligations.

California Private Retirement Plans

California allows for the creation of a Private Retirement Plan, which is entirely exempt from judgments and bankruptcy. That is, retirement savings plans which are not IRS Qualified Plans may be protected under state law if certain requirements are satisfied. According to the cases that have been decided, these plans must be carefully drafted and maintained, but they are highly flexible in design, need not cover other employees, and can include annual contributions that can substantially exceed those available under the qualified plans or IRAs.

Limited Liability Companies

The LLC is recognized in all fifty states with well-established case law and statutes. The purpose of the LLC legislation is to allow individuals to create a legal entity that avoids many of the tax and business problems inherent in the corporate and partnership structure. The intent of the law is to allow individuals to conduct their financial and business affairs in an efficient and convenient manner without the restrictions, formalities, and liabilities associated with those other entities.

The Personal Residence Trust

A residence has certain unique legal attributes  which are unlike any other type of property. Homes have a distinct set of tax and legal considerations  which don’t apply to any other type of property. Rental real estate has its own characteristics and savings and pension are treated still differently.  To protect the home from liability risk several key factors must be considered.

The Family Savings Trust

An increasingly popular tool used for asset protection and estate planning is known as The Family Savings Trust.  The term is broadly descriptive of a trust designed specifically to hold and protect a variety of assets against lawsuits and business risks.  It can be very flexible in form and allows for the accomplishment of most important asset protection and estate planning goals.

Equity Reduction Plans

In many situations, where movement of an asset is impossible or impractical, equity stripping within an ERP can move the equity or the value of an asset into a protected position. Ownership of the underlying property remains the same and need not be transferred. This is a clear advantage in many situations:

Offshore Havens For Privacy and Protection

In this section, we will discuss the real world of the offshore havens. We’ll show you what can and can’t be accomplished to save you taxes and the legitimate strategies available for asset protection and privacy planning. The offshore havens exist because of a powerful demand by individuals in many countries to shelter their accumulated wealth from a variety of perceived threats.

These techniques should be varied and combined into greater and higher levels of sophistication to produce the best asset protection for you. An understanding of these foundational legal strategies will assist you in developing an asset protection plan which accomplishes your goals.

 
 
 

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