The subjects of Privacy and Asset Protection are complex issues. Most people today just “throw their hands in the air” and give up. New laws enacted since the September 11th 2001 terrorists attacks have taken away a lot of the liberties that we once enjoyed.
The good news is that privacy from “legal terrorists” is still possible. It is also still possible to protect your assets from dead beats and lawyers. However, you must be diligent and you must begin your plan BEFORE ANY TROUBLE STARTS. Be warned… for the average American the contingent fee lawyer is the number one terrorist of the 21st century!
This article is designed to help you get started. It has been written with the novice in mind. Think through your “battle plan” before acting. Remember, if it is worth acquiring, it is worth protecting!
What is Asset Protection?
It is rather obvious that asset protection means to protect your assets from creditors and would be litigants. A better definition might be pre-litigation planning to deter lawsuits and encourage out of court settlements. The bottom line is not only protecting your assets from attack, but to minimize the amount of time you spend dealing with an attack (to allow you to spend your time more profitably).
What is interesting is that there is very little written about the subject of asset protection. There are no casebooks written on the subject, no classes taught in law school and very few books written for the inquiring mind. The term “asset protection” does not appear in state statutes or in the U.S. Code. It is rare to even find the subject written about in law digests.
Recently we attended a continuing education class for lawyers (we are not lawyers). This one day course was designed to help attorneys “discover assets” of their opponents. While interesting and informative the class was not taught by someone experienced in debtor-creditor litigation. Theory does not often meld with real-world asset protection.
For example, can you imagine that someone would plan 20 years in advance to protect themselves from a frivolous lawsuit? Or that someone would sell an option on their real estate just to cloud the title (in case of attack)? Or that an individual would intentionally over-encumber their investments to give the impression of no equity? The best asset protection plan is one that can be reviewed and approved by a judge in a court of law.
However, our legal system is so unpredictable that most people with serious money and assets will not leave asset protection to chance. Boilerplate documents will not be adequate for a good asset protection plan. Professional help should be sought, if you can find it. Solid planning requires well-crafted documentation.
There are three main areas of concern when it comes to protecting yourself. First your income, then your assets, and finally your physical well-being. We have been talking so far in this article about someone tapping into your income by the unauthorized use of your credit. This prevents you from being able to either buy more assets or deprives you and your family of lifestyle. Another way of attacking your income and assets at the same time is to sue you. One out of every 15 people will be sued in the next 5 years. Each year bogus creditors, phony lawsuits and the IRS steal assets and income from people just like us because we fail to protect our assets adequately. How do you prevent this from happening to you?
Adopting a philosophy/attitude is certainly your first line of defense. Keeping a low profile, not bragging about your holdings, living a moderate lifestyle (at least locally), and buying proper insurance (we encourage our students to buy lots of liability insurance AND an umbrella liability policy) are all good habits to establish. But, these actions alone will not guarantee that you will not be sued and lose everything to a quick buck artist and his lawyer (and your lawyer too—-it costs a small fortune to defend yourself from a frivolous lawsuit).
Your next step is to list out all of your assets (you have probably already done this for your personal financial statement) and analyze each and every one of them. Most of us have developed an attitude about our assets that projects an image to the public that can cripple us at a time when we are most vulnerable. Now is the time to “organize” our assets and properties before an attack is launched against us.
If you look at the really rich people in this country and study their habits, you will find that they benefit from assets but don't “own” many. In other words, they have learned how to enjoy the fruits of their labor without risking their principal. How do they do it? First, they select a few paltry assets to own in their own name. This gives the illusion that when you find these assets, it's all that they own. Some pursuers will stop here. However, the real assets are hidden in trusts, corporations, foundations, family limited partnerships, fictitious names, nominees, agents, attorney's trust accounts, escrow accounts, options, and on and on and on. When properly setup, the user has the full benefit of the assets, but he/she is legally unable to control any of them. Therefore, the assets are beyond the reach of all of their creditors!
This article is just the beginning if you are truly interested in protecting your assets. As you can see, this is a complex subject and you will need a lot more education to accomplish your asset protection goals. With any new subject there is a steep learning curve, but if you have spent a life time acquiring assets (or will spend a life time acquiring assets) is it not worth getting additional information and training?