In this weak economy, every dollar you make and every asset you own is at risk. Vultures in the form of creditors and litigators drool at the thought of a successful person whose assets are unprotected. If you’re making money, you’ve got a bull’s eye right now. The only way to protect what you deserve from those who try to take it away from you is to put in place 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. Any single person can use any or all of these techniques.
1. The first technique is to remove your name from ownership of your assets, but not control of your assets. You want to be rich but look poor.
A corporation into which you can transfer your assets to achieve this goal is a limited liability company, or LLC. A creditor cannot attach debt to the member interest of an LLC. Therefore, the interests you own in an LLC are protected from creditors’ liens. The creditor or judgment holder is limited to holding a subpoena against all distributions made by the LLC. You cannot touch any of the LLC’s assets, nor can you take money you pay yourself as salary (without an order permitting garnishment of wages) or assets bought or sold on behalf of the LLC. As long as you avoid distributions from the LLC, the creditor has no ability to collect at all.
Another entity that protects your wealth is irrevocable trust. You can put your assets into an irrevocable trust and prevent any debt you owe being imposed on those assets because you don’t technically own them. You can name and keep a spouse, child, or friend as a trustee indeed control without having any legal ownership or control. Another advantage of the irrevocable trust is that it does not need to be listed on an asset statement as it is no longer part of your assets. However, any shares you own in an LLC must be recorded on an asset deed, even if those shares are protected.
2. The second technique is to convert your assets into vehicles that are already creditor-exempt. Homestead real estate, annuities, IRAs, retirement plans, and life insurance policies are the most common creditor-exempt entities.
For new or existing Florida residents, by far the most convenient means of protecting your property is the Florida Homestead Statute. Any earned interest or value added to a person’s homestead is protected by Florida’s homestead exemption. The only creditors who can place a lien on your property are those creditors who hold liens on your property. The three most common liens of this type are mortgage liens, federal tax liens, and mechanic’s liens (money owed to someone you hired to work on your property). Association liens also belong to this type.
The cash surrender value of an insurance policy that insures the life of a Florida resident is also not subject to lender claims. Also note that the life insurance death benefit is protected from claims as long as the death benefit passes to a beneficiary and not to the testator’s estate.
The proceeds of an annuity issued to a Florida resident are not subject to claims by creditors. How this exception works is best explained by Goldenberg v. Sawczak, 791 So.2d 1978 (Fla. 2001). dr Goldenberg invested millions of dollars in an annuity, began practicing without insurance, and committed serious medical error a few years later.
The Eleventh Circuit affirmed the question of whether the surrender value of the annuity is exempt and not just the “proceeds” as stated in the text of the statute, Section 222.14 of the Florida Statutes. The Florida Supreme Court ruled in a unanimous decision that the surrender value of an annuity is exempt when it is subject to a contractual surrender penalty, leaving malpractice victim Dr. Goldenberg, being shielded.
3. The third technique is to make all your current wealth less attractive to those who might want to take it away from you.
We do this through a process called equity stripping. Placing liens on assets that are currently unencumbered or have some equity makes the asset appear more like a liability. You don’t necessarily have to go to a bank and take out a loan. Equity stripping doesn’t have to cost you any extra money. You can have one of your out-of-state LLCs write a note for more than your property is worth. When a creditor or litigator looks at your assets, they will see property encumbered with a loan that is worth more than the property itself. The property will be “underwater” and unwelcome to potential wealth vultures.
Asset protection is a necessity in today’s “money for nothing” mentality. 50 million lawsuits are filed annually. Each of us will be sued 5 times in our lifetime. Are you going to shrug off your lawsuit without worrying, or will one of these lawsuits permanently financially cripple you and your family? The time to plan is now.
Warning: You should always consult a professional when creating and implementing an asset protection plan. Property protection attorneys are trained specialists who can ensure that a plan is put in place that protects without the risk of being seen as fraudulent.