Protecting Your Assets
It’s NOT Just For The Wealthy
It’s For Everyone
Most people are working toward creating an estate of some kind — whether to assure a comfortable retirement, to pass on to worthy beneficiaries, or both. An estate is simply your net worth. You may have a small, medium or large net worth — but whatever you have, it is worth protecting.
If you are older, your net worth most likely includes assets that will go to provide for your retirement. If you are younger, you may only be in the position to start acquiring assets. Nevertheless, if you are improperly protected, your future earnings could be tapped to pay off a lawsuit.
Depending upon your situation, a variety of asset protection strategies may be used. Asset Protection works mainly in this way: it allows you to still enjoy and control your assets while removing legal title (”ownership”) to them.
Don’t let that scare you. Most people think that by giving up legal title, they no longer control the assets. And often, that’s true. But by using a variety of legal strategies — such as owning assets in certain types of corporations — you can still decide what to do with the assets and still enjoy them while protecting them from potential or real creditors.
Not bad, eh?
(Now, beware — there are a variety of professionals who might talk to you about asset protection. But the strategies they use will be particular to them:
- Insurance agents will be happy to tell you to use life insurance and annuities
- Pension consultants will sell you ERISA-qualified retirement plans;
- Attorneys will be glad to consult with you at a princely hourly fee as you attempt to explain what you mean by “asset protection.”
However, CWPP ™ advisors will carefully analyze your situation, evaluate what vulnerabilities you may have, and suggest solutions for your specific problems using any and all of the above strategies — as they apply to your situation.)
The most-used methods for protecting assets domestically are legal entities known as “Family Limited Partnerships” (FLPs) and “Limited Liability Corporations” (LLCs).
One of the primary strengths of these entities, when properly set up, is that the ownership and control of the assets cannot be handed over to a creditor (e.g., a successful plaintiff in a lawsuit) unless a “charging order” is executed.
With a charging order:
- A creditor cannot immediately be given interest in the LLC or force the debtor to sell his/her interest and turn over the proceeds to the creditor.
- A creditor cannot force the LLC to sell assets.
- A creditor cannot force an LLC to distribute income.
In short, charging orders typically allow debtors to retain control over partnerships and LLCs and determine the timing of any distributions.
And as if that weren´t enough to discourage a creditor, the creditor is also considered to be a partner for federal income tax purposes. In other words, while they are waiting for you, the debtor, to determine when they can get paid, they have to pay income taxes on their “share” of the earnings in the meantime — even if the earnings are not distributed!
Needless to say, this is less than inviting.
Let´s compare that with two other legal entities, the S-Corporation and the C-Corporation.
If you lose a lawsuit and have assets in one of these types of corporations, the court can order:
- you to iquidate your interest and give the proceeds to the creditor,
- you to transfer your interest in the C- or S-Corporation to the creditor,
- and that the creditor is given the right to vote your interest in the company.
When considering how to protect your personal assets (assets in your name), consider that C or S-Corporations will not protect the following from creditors:
- Family Home or Condominium
- Rental Property
- Non-Rental Property
- Stocks or Mutual Funds
- Life Insurance
- Bank Account or CDs
- Planes, Boats, Automobiles, Waverunners or Motorcycles
- Other business entities (especially S- or C-Corp stock)
- Collectible items that have value
Whether it´s a valuable piece of art that you´ve been delightfully watching appreciate in value, or recreational vehicles — whether they are in your or your spouse’s name — creditors could subtract it from your wealth.
How can you protect yourself?
FLPs and LLCs form the foundation of most domestic asset protection strategies. Are they the right choice for you?
Find out more, including how FLPs and LLCs are just the start of a solid asset protection plan, by contacting us today. You never know when protection from business or personal creditors may be needed, so don’t delay.
You might want to check out legitimate offshore asset protection trusts as well, since they are often helpful to people who don’t think of themselves as needing offshore protection.