The ideal asset protection strategies utilize financial plans and legal tools that have been developed to safeguard your valuables from lawsuits. While there are many ways to protect your assets, we’ve put together 5 asset protection strategies that we feel will help get you started on the right path. Use these tools to help reach your financial goals and structure your estate planning.
#1 Use LLCs for Asset Protection
Using LLC statues includes provisions that prevent creditors from taking a company or the assets within it. Most jurisdictions employ a charging order, which states that creditors have the rights to distributions paid out of LLCs. However, creditors cannot force you to make payments, as whoever holds the right to distributions is the one responsible for taxes, whether they have been paid out or not. This results in your creditor being in possession of a tax bill, instead of your asset.
#2 Asset Protection Trusts
Asset Protection Trusts can be a powerful tool when it comes to protecting money from lawsuits. However, a Trust by itself generally does not have charging order protections and many cutting-edge Trusts have not been court tested so tread carefully when selecting an Asset Protection Trust. Generally an LLC or Limited Partnership can be used in most cases. The top asset protection trusts are formed offshore. Since local courts do not have jurisdiction over foreign law firms serving as trustees, the hands of courts and opposing attorneys are often tied when it comes to dealing with these trusts, which shields them from scrutiny.
#3 Avoid Personal Ownership
Legal tools are available to keep creditors from taking your assets. If you have been personally sued, most assets in your name are rendered vulnerable. For this reason, it is recommended that you do not hold non-exempt assets under your own name in a personal capacity. When thinking about suing you, the first thing that an attorney might do is perform an asset search. If you hold your assets in a proper asset protection trust, however, you will have access to your assets, while the party suing you will not. Your trust can also name your heirs as beneficiaries.
#4 Use Separate Legal Tools
You’ve likely heard that you should not keep all your eggs in one basket. The same concept holds true when it comes to asset protection. Ideally, you should use various legal tools so that even if one tool becomes vulnerable, the rest can remain strong. Each asset should be kept in its own compartment to avoid all of them crumbling should an unfortunate event occur. If all of your assets are kept in the same place, you could potentially lose all of them at once if someone sues you. Holding real estate in an LLC is a good idea until an incident occurs that surpasses the coverage that your insurance provides. Instead, keep each piece of real estate in a separate LLC for optimal protection.
#5 Refrain from Flaunting Wealth
Ostentatious displays of wealth can be dangerous in more ways than one. If you flaunt your wealth, you are making yourself vulnerable to potential lawsuits. In such a scenario, any one of your assets have been made known to lawyers who would then be able to go after them in court. By keeping your wealth private, you stand a better chance at avoiding a situation in which your assets can be held up to public scrutiny.
