Asset Protection: Key Points

Asset protection is about keeping what you have, even if people try to sue you for it. What are the key points to asset protection?

  • Plan BEFORE there is a problem
  • Asset protection is not insurance, nor a substitute for it
  • Put Personal Assets in Trusts
  • Put Business Assets in Entities
  • Asset protection and Tax Planning are not always congruent
  • You are here, even if you hide money elsewhere
  • Do not count on Bankruptcy
  • Keep Asset Protection Simple
  • Segregrate Accounts, Finances, and Personal Involvement
  • Understand the Difference between Officer and Member of Entities
  • Hiding Assets is not the entire solution, only a small part of it

Asset Protection Example

There are legitimate reasons to protect assets and think about future attacks against your wealth. Consider that you have a real estate company that buys and sells houses. It is worth millions of dollars. For example sake, say that you also have 3 rent houses inside the same LLC. Someone dropped a toaster in the tub of your rental and though you were found innocent of anything criminal, they somehow tie you up in court and legal fees for several years or demand that you pay for their dear beloved whomever who dropped the toaster (it’s not your fault, why pay?).

You refuse to pay, so instead they sue you for other issues like the bad electrical job that you didn’t know about. Now what? You can fight it, but it’s a 40,000 fee just to “win” and prove innocence. They want 30k to settle or they will sue. Win or lose you need to spend money!

You also have a rental company. It doesn’t own anything. It has a broken chair and a slow computer. It signs all of the contracts to renters. It also is responsible for the maintenance.

Luckily you planned ahead and borrowed everything possible from the equity in the property for another deal. There is nothing for them to sue in this property. You also have the property in a series LLC, by itself. It’s like a container that they cannot look outside of. Furthermore, you leased the tenant the property from another company that doesn’t own anything.

Though you are part of the company executive leadership in both companies, you also share it with another company, based in Arizona. You keep proper books and documentation and hold company meetings where members vote. You do not co-mingle funds. You have a checking account for each of your LLCs and payments match each account for expenses and profits.

Another of your companies took out a lien against this property, borrowing 200k more than the property was worth and using this husk of a property as collateral. The property is very far underwater and clouded in tremendous debt that you will someday pay back, when the timing suits you.

Furthermore you went one step further and put a land trust in the middle of everything so they don’t even know who owns what.

When the stupid family of the stupid toaster dropper tries to attack you they are blocked several ways:

  • Their attorney will not know how to contact and will charge up front legal fees to find out. Many leeches that sue for profit will stop here, as they cannot pay upfront.
  • When they finally get the information about who owns the property, they find it’s your broke LLC
  • They keep looking at the loans/mortgage to find equity but realize that there is no equity, therefore nothing they can take.
  • They Sue you anyway and get in line behind the first 200k lien you placed upon your own property. Even if it sells, they will never collect.
  • Frustrated they try to sue you, but realize that you personally never actually did anything to them, so their lawsuit is thrown out.
  • Their attorney gently tells them to give up

This is a nice fairy tale, and in some ways is not an exaggeration of some of the methods used to protect assets. There are many ways to protect the many types of assets though, this is just one humorous example. Some will work, some won’t!

Series LLC

If you have multiple properties and someone gets hurt on one of them, do you want them to take all of your properties? A series LLC allows you to put a property in each series. If you keep your books accurate and do not co-mingle funds, each LLC is a separate entity. A renter cannot attack the other entities without a reason. Did they get hurt at all properties or only one? A series LLC is great for holding assets like properties.

Layers of Ownership

If someone tries to sue you or your business they need a reason. The entity or person that caused the damage should be liable, but what if that entity owns nothing? There is no way a debtor can ever collect. Many landlords try to recover money from bad renters who own nothing – it’s not possible! Businesses get the same types of protection. If the business has no assets, there is nothing a debtor can do.

They cannot sue your business to get at you and vice versa – unless you co-mingle funds and use your business as your personal piggy bank. By forming correct and legitimate companies you limit the liability and exposure you have from attacks (assuming you are not personally committing fraud).

Offshore Accounts

There are tax laws that allow money to be kept off shore – but not fraudulently. Debtors may not be able to get your money in Switzerland, but they can still put you in jail until they get it. Proper setup and understanding of how asset protection works is important for anyone, not just the super wealthy.

Professional Assistance with Asset Protection

As you can see, the asset protection techniques can quickly become obtuse, complicated and even fraudulent. It’s best to hire a professional asset protection attorney to help you navigate these muddy waters.