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Do You Have an Asset Protection Plan?

Charles S. Liberis Dec. 23, 2021

If you got sued and lost all of your assets,

would you be able to start over and

build up your estate again?

Or, if you are retirement age, could you get by

on just your Social Security?

Is Asset Protection Planning Legal?

Yes, asset protection planning is perfectly legal and ethical. In our litigious society very few of our assets are safe from attack. So why take a chance? Think of asset protection planning as having five levels of protection.

The First Level — Favorable State And Federal Exemption Laws

Take advantage of state and federal laws that are already in place to protect certain assets from lawsuits and creditors. For example, in Florida, the cash value of life insurance policies, proceeds from annuities, IRAs and other retirement accounts are exempt from lawsuits and creditors. Your personal residence is also protected by an unlimited homestead exemption, and real estate owned by a married couple as tenants by the entireties is protected from lawsuits against only one of the spouses.

The Second Level — Insurance

Have as much liability insurance as you can afford. If you don't have an umbrella policy, get one. If you are a professional, you should also have professional malpractice insurance. We are often asked how much umbrella coverage we need. Assume that you have a $1 million umbrella policy, and you have an automobile accident…it's your fault and you break a young girl's arm…you have enough insurance coverage. If you break both of her arms, you have enough insurance. However, if you put her in a wheelchair for the rest of her life, you don't have enough insurance coverage. Without an asset protection plan, you may lose everything you have. Some of you could start over, but many may be too old to start over. So why take the risk.

The Third Level — Limited Liability Companies

For most of our clients, we feel that Wyoming's close limited liability company is the basic entity of choice. Properly structured, it enables you to protect most of your assets from seizure.

If the owner of a Wyoming close LLC is sued individually, let's say because of an automobile accident, or because of professional malpractice or a fire in their rental property, the owner's interest in the LLC cannot be seized to satisfy a judgment against the owner, individually, as a result of the lawsuit.

Wyoming statutes provide that the exclusive remedy for a judgment creditor is a charging order. This is a court order instructing the LLC's manager to pay a judgment creditor any income that is distributable to the LLC owner. The manager of the LLC may elect not to distribute any. This would frustrate the judgment creditor. Further, if the owner of the LLC is a trust the income is distributed to the trust that owns the LLC. The client maintains control of the LLC as its manager.

The Fourth Level — Domestic Asset Protection Trusts

A few states have passed legislation that permits citizens of other states to use their laws to form what are called asset protection trusts (APTs). They can be used to protect assets from lawsuits and creditors. For example, an individual may form a trust in Nevada and name a Nevada trustee (trust company or bank) to serve jointly with him to manage the trust. The trust can provide that the grantor of the trust can be a discretionary beneficiary and would be able to have beneficial use of the trust funds for anything he or she sees fit. If the grantor got sued, and the plaintiff got a judgment against him, the judgment creditor could not seize the assets inside the trust, nor the income earned on those assets.

The Fifth Level — Foreign Asset Protection Trusts

Offshore asset protection trusts take asset protection planning to another level. This step is expensive and complex, but for many it offers the ultimate protection because the trustee (not your money) is offshore…meaning the trustee is located in a jurisdiction over which U.S. courts have no jurisdiction.

Contact us today to schedule a free consultation to discuss an asset protection plan for you and your family.