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Asset protection strategies are essential for safeguarding your hard-earned assets from threats like lawsuits, creditor claims, and divorce. These plans involve legal tools and highly-customized financial plans suitable for protecting wealth and achieving financial goals. Many law schools avoid teaching students how to protect assets because it undermines the profitability of the legal profession. However, asset protection planning is crucial for high-earning professionals, business entities, and wealthy families. At Blake Harris Law, asset protection is our exclusive practice area, and we have extensive experience helping individuals and families protect their valuable property.
Showing off your wealth draws unwanted attention and could make you a target for lawsuits. You can conceal your assets in various ways, but they’re still vulnerable unless you’ve implemented asset protection measures to keep them safe. When you shield assets using the available legal tools, such as transferring them to a trust, they’ll stay secure even if creditors and lawyers discover them. If you want to lock down your property, it’s essential to recognize the distinction between hiding your assets and protecting them.
One of the most popular ways business owners protect their assets is by forming a business entity with limited liability. Limited liability companies (LLCs) have asset protection provisions that prevent creditors from being able to seize assets or control the company, and they provide a vehicle to separate your personal assets from those of your business. Since an LLC is a separate business entity, you would not be personally liable for any claims against the business or its operations. In theory, lawsuits or liabilities directed at your business can’t touch your personal assets. Even if a creditor wins their claim against an LLC, they may not be able to get access to the assets the business holds. Their answer to this roadblock is known as a charging order, which gives them the right to receive distributions paid out by the LLC. However, they can’t force the owner to make any payments. Additionally, having the right to distributions makes them responsible for the taxes. Due to the charging order protection in many jurisdictions, creditors often end up with a tax bill and no seized assets. This frequent result deters creditors from filing lawsuits against LLCs in the first place. Jurisdictions with the most protective LLC laws include Wyoming, Nevada, Delaware, the Cook Islands, and St. Kitts and Nevis.
Liability insurance protects your assets from lawsuits, serving as the first line of defense if you get sued. A solid asset protection plan should include insurance policies that guard against various types of liability. Examples of insurance coverage that shields your property from liability include:
Many liability insurance policies cover your legal defense and losses, but choosing plans with generous coverage limits is important to ensure your assets stay untouched. Other types of insurance, such as a long-term care policy, protect you from potentially account-draining expenses like healthcare later in life.
Asset protection trusts are one of the most effective tools for safeguarding your wealth, especially liquid assets. You transfer your assets to an irrevocable trust in the care of a trustee, and you are no loner the legal owner of those assets. However, you can still direct control of your assets through the trustee. The laws governing asset protection trusts make the assets difficult to reach in the event of a lawsuit, especially if you create an offshore asset protection trust. These foreign trusts are far out of the reach of local courts, greatly increasing the likelihood that your money stays safe, even if the creditor succeeds with their initial claim. A domestic asset protection trust isn’t as impenetrable as offshore trusts but can be more economical and convenient. Offshore trusts offer top-level asset shielding, high confidentiality, and tax efficiency. Common offshore locations with strong asset protection laws include the Cook Islands, Belize, and Nevis. Benefits of using an offshore LLC or trust include:
Retirement accounts, such as your employee-sponsored 401(k) or traditional IRA, allow you to put your money behind a solid wall of protection provided by federal law. You can usually keep your retirement account even after bankruptcy, making funds inside this type of account better protected than your personal assets held in regular individual or joint accounts. The level of protection retirement accounts receive depends on the state law where you live. You can consult with your lawyer to determine what kind of protection strategies are available to you through retirement accounts.
When someone sues you personally, any assets in your name are vulnerable. Lawyers can perform an asset search to determine what assets could be used in order to cover a potential judgment or settlement. You can avoid this scenario by transferring non-exempt assets out of your name. The following are examples of how you can separate assets from your name:
If you want to protect your real estate by holding your land in an LLC, keeping each property separate allows you to avoid one lawsuit from exposing all your properties.
Many small business owners form their companies with limited liability. An LLC allows the owner to keep their personal assets separate from their business assets, freeing them from personal liability if someone makes a claim against the company. Along the same lines, owners should assess joint accounts since the debts of family members or business partners can threaten the jointly held property. Keeping properties separate mitigates some of the risks from lawsuits and other obligations. Another way a business owner can protect personal assets is by acquiring business insurance that covers any losses involving their company. Types of coverage a business owner might need include worker’s compensation insurance, business insurance, and business interruption insurance.
With the proper asset protection strategies, individuals can shield their assets with multiple layers of legal protection. Several ways to implement security for individual assets include:
In Florida, for example, the law gives unlimited protection to annuities and their distributions. The state also guards the cash value of a debtor’s life insurance, and the death benefits aren’t subject to probate. Other types of estate planning can even protect distributions to trust beneficiaries from the beneficiary’s creditors. Individuals can protect their bank accounts from writs of garnishment by choosing an institution that doesn’t allow them.
The homestead exemption in Texas and Florida is one of the most powerful asset protection tools. These state’s constitution exempts the debtor’s primary residence from debt collection, and there’s no limit to the home’s value. However, the property must meet the following requirements to qualify for homestead protection:
Insurance is another crucial piece of the puzzle for landowners. Homeowner’s insurance protects you from losses involving your home, and leasing insurance protects you from potential liability from rental properties. A rental property can also go into a separate Limited Liability Company to keep it separate from your other assets.
Your profession determines your level of risk and which asset protection strategies are best for you. Doctors, attorneys, financial professionals, engineers, and other high-earning professionals have greater levels of risk. Professional liability insurance can cover your losses, pay your legal fees, and prevent damages from encroaching on your personal wealth. Doctors and lawyers can benefit from insurance that protects them from malpractice claims. When a plaintiff accepts your insurance payout, it releases you and the insurance company from further damage and claims. Additionally, professionals with multiple business locations can use separate legal entities to isolate claims against a single business location. Business owners take on significant liability when they hire employees since they could file lawsuits for discrimination, harassment, or wrongful termination. Also, employees can get into accidents that the company could be liable for. Limited liability companies and limited partnerships are excellent solutions for professionals and business entities to keep their property separated in terms of liability and make it more difficult for creditors to access their holdings.
Customizing your asset protection strategies involves using specific legal tools to hold assets, each tool representing a set of laws that help you limit liability and secure your property from certain risks. For example, you can take advantage of the Texas and Florida homestead protection to shield home equity specifically, protecting your property from bankruptcy and lawsuits as long as you meet the requirements. You can also combine strategies, such as forming an offshore trust and an LLC, then transferring ownership of the LLC to the trust. The trust assets go into a bank account in the company’s name, making it so that the LLC owns the bank account and the trust owns the LLC. You can still act as manager of the LLC, but the trustee will act as manager of the trust. Alternatively, you can have the trust own the bank account directly. With a reliable foreign party as your trustee, your assets will be out of the reach of local court orders. You must avoid a fraudulent transfer or any other activity that gives creditors an opportunity to attack the trust. Your lawyer can help you determine whether such a strategy suits you based on your financial goals and property owned.
An experienced asset protection attorney can help evaluate your situation, explain the different legal alternatives available, and recommend a comprehensive asset protection plan that works for you. They can put together the different legal entities that form an asset protection plan, establish the trustees, and help with the funding process. A skilled asset protection lawyer knows the legal environment and can help you make informed decisions regarding how to best help protect your wealth.
You’ve worked hard for everything you have, so you should use the many tools available to protect your property and give you and your family peace of mind. If you have questions about what asset protection strategy is best for you, contact our experienced team at Blake Harris Law to create your asset protection plan. Call us today at 833-ASK-BLAKE, email us at Info@BlakeHarrisLaw, or fill out our contact us form.