In this depressed economy, every dollar you earn and every asset you own is at risk. Vultures in the form of creditors and litigators drool at the thought of successful people whose assets are not protected. If you are making money, now you have the right goals. The only way to protect what you have earned from those who try to take it from you is to create a comprehensive asset protection plan. Thirty percent of potential lawsuits are avoided simply by having an asset protection plan in place. There are three techniques to protect your assets. Anyone can use any or all of these techniques.
1. The first technique is to remove your name from your asset holdings, but not from your asset holdings. Want to be rich but look poor.
One entity to which you can transfer assets to achieve this goal is a limited liability company, or LLC. Creditors cannot attach debts for the benefit of LLC membership. Therefore, the shares you own in any LLC are protected from any creditor liens. Creditors or judgment holders are limited to having a charging order against any distribution made from the LLC. They will not be able to touch any assets in the LLC, nor will they be able to take any money you paid yourself as salary (without an order allowing wage deductions) or any assets purchased or sold on behalf of the LLC. As long as you avoid distribution from the LLC, creditors will have no ability to collect at all.
Another entity that provides protection for your assets is an irrevocable trust. You can transfer your assets into an irrevocable trust and prevent your debt from being charged to those assets because, technically, you don’t own them. You can name your spouse, children or friends as guardians and maintain actually control without having law ownership or control. An added benefit of an irrevocable trust is that it does not need to be entered on an asset sheet, as it is no longer one of your assets. However, any shares you own of the LLC must be included on the asset sheet, even if the shares are protected.
2. The second technique is to turn your assets into vehicles that are already creditor-free. Homestead properties, annuities, IRAs, retirement plans, and life insurance policies are the most common creditor-free entities.
For new or existing Florida residents, by far the most convenient vehicle for protecting your assets is through Florida Homestead laws. Any acquired interest in, or added value to, one’s homestead is covered by the Florida homestead exemption. The only creditor who can attach a lien to your homestead property is the creditor who holds the lien arising from your property. The three most common liens of this type are mortgage liens, Federal tax liens and mechanical liens (money owed to someone you hire to do work on your property). Associate liens are also of this type.
The cash surrender value of an insurance policy that insures the lives of Florida residents is also not subject to creditor claims. Also note that the death benefit of life insurance is protected against claims as long as the death benefit is passed on to the heirs and not the deceased person’s estate.
The proceeds of annuity contracts issued to Florida residents are not subject to creditor claims. This exception operation is best illustrated by Goldenberg v. Sawczak, 791 So.2d 1978 (Fla. 2001). Dr. Goldenberg put several million dollars into an annuity, started practicing medicine without insurance, then committed serious malpractice a few years later.
The Eleventh Circuit legalizes the question of whether the value of an annuity surrender is excluded, not just “outcome” as stated in the text of the statute, Section 222.14, of the Florida Statute. The Florida Supreme Court, in a unanimous decision, held that the surrender value of an annuity contract was excluded if it was subject to a penalty of surrender of the contract, thus protecting the greatest asset of the Dr. malpractice victim. Goldenberg.
3. The third technique is to make all of your current assets less attractive to those who might want to take them from you.
We do this through a process called equity stripping. Placing a lien on an asset that is not currently encumbered or has equity makes the asset appear more like a liability. You don’t actually need to go to the bank and take out a loan. Equity stripping does not have to incur additional costs. You can ask one of the LLC’s outside your state to write a Note for more than the value of your property. When a lender or litigator looks at your assets, they will see a piece of property burdened by a loan that is worth more than the asset itself. The property will be “underwater” and undesirable for any potential vulture assets.
Asset protection is a necessity in this day and age with a “money for nothing” mentality. Fifty million lawsuits are filed each year. Each of us will be sued 5 times during our lifetime. Will you dismiss your lawsuit without worry or will one of them permanently cripple you and your family financially? The time to plan is now.
Warning: You should always consult a professional when creating and enforcing an asset protection plan. Asset protection attorneys are trained specialists who can ensure that a plan is put in place to protect without the risk of being deemed fraudulent.