Just the other day a guy called and asked us a question. We’d set up an LLC for him for asset protection. It was a Nevis LLC, so the strongest LLC in the world. He asked us, “Okay, I just put a bank account in my LLC. Should I also put my cars and houses in there too?” We replied calmly but our protective instincts wanted to leap inside of us. We felt like jumping up on our chairs shouting, “NOOOO,” to put some emphasis behind our answer. It’s so important when discussing how to protect your assets that you separate your safe assets from your dangerous assets. There are several tools we set up to help you do so, but first it’s important to understand the difference between the two.
What is a Safe Asset?
Safe assets are items you own that are unlikely to cause lawsuits. These items are considered safe because they won’t likely cause harm to others. Your bank account is an example of a safe asset, as are jewelry, artwork, gold and personal collections. Intangible items – such as stock and bond investments – are also considered safe assets. These items are not going to smash into somebody’s car. Nobody without the wildest of imagination is going to slip and fall on them. You’re not going to fall out the second story window of these items. They’re not going to bite you, kick you, or trip you or anybody else. They’re safe assets. Generally speaking, we can usually put safe assets into one legal tool such as an LLC and or an asset protection trust.
What is a Dangerous Asset?
As the name implies, dangerous assets are items that can be a danger to others. This includes real estate, such as your home, rental properties and construction equipment. Vehicles – such as cars and trucks – are considered very dangerous assets. No matter how much insurance you have, someone can always sue you for more. There are also risks such as breach of contract, foreclosure, divorce for which you are on your own protect yourself.
Dangerous assets increase your personal and professional liability and risk, which make lawsuits more likely. For example, if someone is driving your car and the car is in your own name, the injured party can sue both the driver and owner of the car. If you’re the owner, watch out.
Someone slips and falls on your rental property and breaks her noggin, take cover. The legal papers may show up at your door. Suppose an LLC owns that house. The LLC can act as a shield against that lawsuit. However, if that same LLC own four houses, all four houses are at risk of seizure from that one lawsuit. As such, we often recommend that you own no more than one dangerous asset per company.
Safe and Dangerous Assets Don’t Mix
Those who mix safe assets, whether business or personal, with dangerous assets risk losing all of them in lawsuits. Say your you or your business (a dangerous asset) physically or financially injures a customer. You or your business are at fault. As a result, they sue you for more for more than your insurance covers. That injured party may seek possession of all of the money in your bank account (a safe asset).
By keeping your safe assets separate, you increase your protection when someone sues you. So, we set up one company for the safe assets. The we set up separate companies for each of the dangerous assets. Never the twain shall meet.
Who Needs Asset Protection?
Every business – small and large – and nearly every person of means, needs asset protection. Often, people lack protection because they are unaware of the risks. What they don’t know is that lawsuits can wipe out everything they own – both business and personal assets.
The truth is that no person or company is immune from risk. If you fail to make payments on an asset, the creditors will come after you and take whatever they can get their hands on. If you have money or investment accounts mixed in with dangerous assets, be prepared to kiss both of them goodbye.
By keeping your assets protected – and knowing how to separate them – you can sleep like a baby. You can rest assured that when that ugly process server shows up at your door, you can continue to live in financial peace.
Types of Asset Protection
So now that we discussed what safe assets and dangerous assets are and why they need to be kept in separate entities, here are some vehicles to consider:
• Corporation:
US corporations are generally based on state law. Their shareholders own them. Shareholders receive shares of stock to represent their ownership. Shareholders have the power to elect a board of directors, who will oversee the company as whole. The board of directors then chooses officers who will run the day-to-day operations of the company. These officers include a president, treasurer and secretary. Separate people may hold these roles, but in most states, it is legal for one person to hold all roles.
Corporations are considered good forms of legal protection because liability is limited. When established and operated properly, the shareholders are not liable in the event of business lawsuits. This might include personal injuries, corporate debts and, as we said, breach of contract. The corporation as a whole may be responsible for any of these occurrences. However, in terms of seizing assets, creditors are limited to assets the corporation owns. The corporation can shield the personal assets of the shareholders, officers and directors from that business lawsuit. That is why a corporation stands out from the other forms of business ownership such as a partnership or sole proprietorship.
• Limited Liability Company (LLC):
While corporations are powerful vehicles for asset protection, many professional practices and small businesses choose limited liability companies (LLCs). LLCs work well as alternatives to sole proprietorships and partnerships due to the protections and tax advantages they offer. They are legal business entities, but they are not corporations.
The rules governing LLCs vary from state to state. As such, the protections they offer vary as well. For the most part, however, the LLCs separate business and personal assets.
Like a corporation, an LLC can protect a business owner from lawsuits against the enterprise. While company assets may be at risk of seizure, the LLC can protect personal ones.
Some LLCs also have assets protection benefits. That is, let’s suppose the lawsuit comes from the other direction. Rather than someone suing your business, someone sues you, personally. A properly structured LLC in the right jurisdiction can do two things. First, it can prevent your creditor from taking your LLC. Second, it can protect the assets the LLC owns from that personal attack.
What This Means
What this means is that the LLC protects you from losing the LLC, itself. Say someone sues you, personally and you and your business associate(s) own an LLC. The company itself and the assets therein are protected from seizure. If you and your spouse own an LLC that holds rental property, for example, LLC statutes may prevent the judgment from taking the company or the rental house.
Thus, LLCs can work well for protecting real estate and other high-risk assets. That’s because you won’t be held liable if someone were to fall and injure themselves on one of your rental properties, for example. Plus, the LLC can keep assets safe from seizure in the event of a personal lawsuit. Therefore, properly structured LLCs can offer protection from lawsuits against your business or ones against you personally.
However, suppose you own multiple dangerous assets such s rental properties. The best way to use an LLC is to have one for each property. So if you have five rental properties, you have five LLCs – one for each property. That way, if you have an issue with one property, your four other ones would are not affected. Each are be protected in its own individual LLC.
In some aspects, professional LLCs, where offered, can also work well. These are set up for medical professionals such as physicians, dentists and psychiatrists. Now, they cannot protect against malpractice suits. They can, however, protect these professionals against company debts. LLCs may also offer protection against claims brought about by employees, suppliers and vendors. Medical professionals can also use LLCs to protect themselves by separating personal assets from business assets.
• Asset Protection Trust:
The strongest asset protection trusts in the world are in the Cook Islands (South Pacific), Nevis (Caribbean Sea) and Belize (Central America). The trusts in the aforementioned offshore jurisdictions are nearly impenetrable. There are domestic asset protection trusts; for example Nevada, Delaware, Wyoming, Alaska. However, the case law results are very poor for US-based trusts.
With the ever expanding theories of legal liability, domestic trusts are repeatedly plundered. Think about it. If you are sued in California, Florida, Texas, New York, do you truly think the judge is going to impose Nevada law? Of course not. He or she is going to impose the law of the state where you live; where your assets are located.
Moreover, domestic trusts have domestic trustees. If a domestic trustee has a choice between handing over his own assets for noncompliance, or handing over yours, we all know what his choice will be. If the domestic trustee could face contempt charges and jail time for not turning over your assets, we are also keenly aware of his likely decision.
Offshore trusts, however, do not have those inherent disadvantages. Our trustee/law firm as well as your asset are beyond the reach of your friendly neighborhood judge. Domestic courts do not have jurisdiction over foreign trustees. Thus, court orders to the foreign trust company fall on deaf ears.
Our organization has established more Cook Islands trusts than any other organization in the world. We know of no client of ours who has ever lost a dime due to litigation from one of our Cook Islands trusts. Moreover, Cook Islands is part of New Zealand. New Zealand is listed by Transparency International as tied for the most trusted jurisdiction in the world. So, the offshore trust, especially in the Cook Islands has proven both safe and effective.
The above is not an exhaustive list of the legal tools we use used to separate safe and dangerous assets. There is the offshore corporation and offshore LLC, the limited partnership, the LLLP and many others we utilize to strengthen our clients’ legal shields.
Smart Move
As we’ve discussed, keeping all your assets together may be convenient, but it’s not a smart legal move. Consider some of the options listed above to protect yourself, your family and your business for many years to come. As an entrepreneur, you’ve worked hard to attain your assets. You may have hundreds of thousands of dollars or even millions of dollars in assets. Don’t let one wrong move let them slip away.
Spend the time and money up front to secure your assets into multiple vehicles. It’ll be worth it in the long run. All it takes is one lawsuit to wipe out everything you worked hard to achieve.
• Other Asset Protection Tools
The above is not an exhaustive list of the legal tools that can be used to separate safe and dangerous assets. There is the offshore corporation and offshore LLC, the domestic and offshore asset protection trust, the LLLP and many others you can research and utilize to strengthen your legal shield.
Hang Onto Your Assets
While keeping all your assets together may be convenient, it’s not a smart legal move. Consider one of the options listed above to protect yourself, your family and your business for many years to come. As an entrepreneur, you’ve worked hard to attain your assets. You may have hundreds of thousands of dollars or even millions of dollars in assets. Don’t let one wrong move let them slip away.
Spend the time and money up front to secure your assets into multiple vehicles. It’ll be worth it in the long run. All it takes is one lawsuit to wipe out everything you worked hard to achieve.
Make the Right Choice
Not sure which vehicle is right for your business? Fill out a free consultation form to talk with one of our attorneys or consultants. Make an appointment to ensure you and your business are able to move in the right directions for years to come. Take the time to discuss the various aspects of your business, as well as the assets you own. Our professionals can help you make the right choice for protection and peace of mind. You can also get advice about which vehicles to avoid, like a general partnership, which can actually do more harm than good if your goal is to protect your assets. As a business owner, you have a lot on your plate. With the right form of asset protection, you’ll sleep better knowing that you’ll be protected in the event of a lawsuit or creditor judgment.
Chapters:
[Home] [1 What Is] [2 Why] [3 Bulletproof] [4 Peace] [5 Strategy] [6 Choose]
[7 Considerations] [8 Tools] [9 Shield] [10 Position] [11 Maximize]
[12 Privacy] [13 Optimize] [14 Separate] [15 Prevention] [16 Scams]
[17 Monitoring] [18 Pitfalls] [19 Private] [20 Tips]
Linsay Thomas, Technical Editor, contributing author
