We live in a highly litigious world where lawsuits are common, particularly among professionals such as business owners, lawyers, and doctors. Your wealth is vulnerable to lawsuits, expensive divorces, creditors, and more. That’s why it’s critical to have an asset protection strategy to protect them.
There are numerous options when it comes to hiding and protecting your assets. The best solutions include financial plans and legal tools designed to safeguard your wealth from lawsuits. Here are some common strategies for protecting your assets.
Don’t Show Off Your Wealth
This is perhaps the most important rule to follow – if others don’t know you’re rich, they’re less likely to target you. An extravagant display of your riches can make you a target of unsolicited lawsuits. You never know who’s eyeing your fortune and looking for an opportunity to obtain your money. And when lawsuits are involved, lawyers won’t give up the chance to take as much as they can from you. Flaunting your assets unnecessarily could turn you into a potential target.
Form Limited Liability Companies (LLCs)
Forming a corporate entity with limited liability is a powerful strategy to safeguard your assets. This is extremely important for self-employed individuals or entrepreneurs to separate their business and private assets. Because these businesses are separate legal bodies, you are not personally accountable for any claims made against them. In the event where liabilities or lawsuits arise, such as you get sued, your private assets are safe and can’t be taken.
Retirement Funds
Federal law provides protection for some employer-sponsored retirement plans. Usually, such plans are protected from bankruptcy which means you can keep them even if you file for bankruptcy. They have a higher level of protection compared to your regular personal assets. The degree of protection varies across states so you should consult your lawyer to find out how much protection you can get from your retirement account.
Asset Protection Trusts
One of the most actively advertised asset protection strategies available is Asset Protection Trusts. This is where you transfer your assets to the trust and let a third-party trustee handle them, so you no longer have legal ownership of them. However, you continue to get all of the advantages of these assets and have access to them through your trustee. Asset Protection Trusts have proven to be extremely tough for claimants or creditors to crack. However, be very careful using Asset Protection Trust due to the nature of them generally being irrevocable. This means they are generally irrevocable and are not easily changed in the future. We all know life changes and its nice to be able to change and amend the assets, distributions, etc.
Offshore asset protection trusts are also heavily advertised. The general premise is that neither the court nor your opponent’s attorney can touch it as they’re governed under foreign law. Unfortunately, offshore asset protection can be very expensive and over the last decade many of these trusts have been seized by outside governments and are now less effective. Domestic asset protection trusts are also available in some states. These are cheaper but don’t give you the same degree of protection. No matter which asset protection trust you’re thinking of setting up, let an asset protection expert guide you on how to establish them correctly.
Homestead Protection
Home equity is safeguarded in certain states, meaning that if you declare bankruptcy, your homestead cannot be claimed by creditors. The degree of protection varies widely between states, with some offering infinite protection while others offering none.\
LLCs and Limited Partnerships
Using LLCs and Limited Partnerships can be very effective at protecting your assets because of their charging order protection. This charging order protection is used in most states and has a long history of case law to back it up. This history is what gives the LLC and/or Limited Partnership the advantage because we generally know how it will be treated in each state. Some states are better at protecting with LLCs and others with Limited Partnerships. Suggest you contact an advisor to verify the latest court updates on that particular state.
