Let’s talk about some of the best ways to protect business assets from lawsuits and personal creditors. This can include equipment, vehicles, medical tools, machinery, etc. There are a number of things we need to do. First, we need to protect your business losing assets after a lawsuit strikes. Then, we need to protect you, personally, from litigation and asset seizure. We need to protect your equipment when someone sues you and/or your business.
Here is an example. Suppose you are driving home from the restaurant on Friday night. You rear end somebody’s car. They sue you for more than your insurance covers. You want to protect yourself from losing your business, losing your business assets, and everything else you’ve worked so hard for. Thus, we want to have the liability protection when your businesses sued so that the litigation doesn’t jump over to your personal life. Plus, when someone sues personally, we want to protect you from someone taking your business away from you. Owning a business puts a legal target on your back. So, what do you do to protect yourself and your business?
Well, we do that with certain legal tools that we will cover. We strip the equity out of the equipment with certain liens, as we will discuss. We own the equipment inside of certain legal tools such as trusts and LLCs. Then we separate the assets so you’re not like shooting geese in a pond; that is, with one company, a whole bunch of equipment, all of your employees and all of this value and all this liability swirling around in the same pool. Doing such is a recipe for disaster.
Separate Your Business Assets
So, we need to separate your business on one side, and your equipment, in a totally separate company, on the other. Your main company leases the equipment from your own leasing company that, in turn, owns the equipment. So, we will take a look at some illustrations together. We will discuss specifically on how to do what we are discussing here.
Title Holding Trust
Ok, the first tool we will to talk about is a title holding trust. The trustee holds the title of the property under the terms of the trust. The trustee could be a company that you own privately. It could be a trusted friend or relative. The trustee holds title to the business assets in the trust, itself. They must follow the instructions of the trust.
The beneficiary, essentially, controls the trustee. You, as beneficiary, can fire the trustee and get a new one. In this particular type of trust, the ownership remains private. So, the property, whether it’s real estate or equipment, is in the trust. But you do not publicly record the trust, itself. So, what happens is that the title to the property, whether it’s real estate or equipment is recorded. But who owns the trust is not. This is because you keep the trust document in your filing cabinet at home, in your office or in a safe deposit box.
Now, because the beneficiary of this type of trust has legal liability, what we do is to have the beneficiary as a limited liability company. The company shields the person who would otherwise be the beneficiary of the trust. The limited liability company (LLC), has many of the benefits of a limited partnership and the benefits of a corporation all rolled into one. So, it is one of the strongest forms of domestic asset protection in the US. Here is why.
First, when someone sues your business, the LLC acts as a brick wall. On one side of the brick wall is your business. On the other side of the wall is your personal life. When an angry customer or employee sues your business, it can protect members or owners from personal lawsuits. There are provisions in LLC law to protect the owners from personal liability. When the someone sues the members directly, on the other hand, there are laws to protect the assets held inside the LLC. So, if the lawsuit happens on the other side of the brick wall that’s in your personal life. We are talking about driving home from a restaurant, rear ending somebody, and getting sued for far beyond the limits of your automobile insurance policy. That is, someone sues you, personally.
When we look at the sole proprietorship vs. corporation the corporation wins hands down. Like and LLC, a corporation is a separate legal entity. The LLC, however, goes one step further. Not only can it protect personal assets from a business lawsuit, the LLC can protect business assets from a personal lawsuit.
Asset Protection Brick Wall for Business Owners
Unlike a corporation, in all states but Nevada, when someone sues you, personally, that person can take the corporation shares away from you. So, a corporation is a merely a lawsuit protection device. If your business is sued on one side of the brick wall, the business side, both a corporation and an LLC can protect you. But a corporation is not an asset protection device.
Let’s say you are driving home from dinner in Friday night. You rear end someone’s car. The crash injures an occupant of the other vehicle, who sues you for more than your insurance coverage. In a personal lawsuit, such as the one in this example, the LLC can protect the business assets inside of it from being taken away from you.
Thus, when a lawsuit happens on the other side of the brick wall, that is, in your personal life, an LLC can help you. That is because an LLC is an asset protection device when someone sues you, personally. So, an LLC works both ways instead of just one way like a corporation does.
So, what do you do if you get confronted by the law firm of Dewey, Stick’em and Howe, and they are coming after you? Say, you’re in a lawsuit right now. How do you protect yourself? What do you specifically do? Ok, here’s an example of what we do for clients. As an aside, our CEO has been doing this for over 27 years, as of this writing. We are the largest asset protection company in the country to our knowledge. So, here’s what we do:
- Title Holding Trust. Each piece of valuable business equipment, whatever that is, is owned in a separate title holding trust. So, that keeps your ownership of those business assets private. People cannot look in the public records and find out who owns it and who is on the title. So, you have privacy of ownership.
- LLC. Okay, next, because the beneficiary of that trust is liable, each title holding trust is owned by an LLC. That is, an LLC is the beneficiary of that trust. So, what does this provide? Well, when the business is sued, let’s say that crane smashes a building, or even worse, injures another human being, the liability is maintained within that one cubby hole that the LLC owns. The company that operates the equipment owns nothing. This is because it leases those business assets from other companies that you own. To put it another way, the employer of the employee who is driving the equipment, if that is your company, does not own the crane. This is because the operator of the crane, or other piece of equipment, has very little to nothing to take. The reason is that your main company that operates the business, and employs the worker who made the mistake, owns virtually nothing.
- Lien. To protect the equipment, itself, we record a lien against each piece of property. So, you have another LLC that records the rough equivalent to a mortgage. For business equipment, this is typically done with a UCC-1 form. For real estate, it is a mortgage or deed of trust. Thus, you strip the equity out of that equipment or real estate. As a “step two” when legal disaster strikes, we have a third-party company that buys the lien and places the proceeds into a “you can’t touch it” account in an offshore trust that we establish for you.
Now, let’s review. First, each piece of equipment or real estate is owned in a separate title holding trust for privacy of ownership. That is, your potential opponent will not readily know what you own. We then set up an LLC as the beneficiary each one of the trusts. That way, so you have privacy of ownership (through the trust) and lawsuit protection and asset protection (though the LLC). When someone sues you personally there are provisions in the law to protect someone from someone taking the LLC, or anything inside of it (such as the assets of your business), away from you. On the other hand, when someone sues your main company (a corporation or LLC) or the separate LLC that owns the equipment, your main company and the LLC can shield you from that lawsuit.
So, when you’re sued personally your LLC protects the equipment from seizure. On the other side, the LLC protects you when someone sues your business. Plus, your business assets are owned inside of another company. Thus, the liability that would otherwise transfer from an employee to the owner is curtailed. The reason is that the main company doesn’t own the assets.
Again, here is your company. In this case we call it ABC Crane Inc. You do the things you need to do for asset protection. You own nothing, control everything. Your main company leases from one central leasing company (that you also own). One main company handles all of the leases on all your equipment companies.
Thus, in order to keep it simple, we set up one main company that manages the other equipment companies. That way, you just write one payment to your main leasing company. You own the leasing company. So that’s just one check from your main company to your leasing company every month.
As stated, your main company doesn’t own anything. It simply makes a lease payment to your one central leasing company that owns all of the LLCs that own your equipment. Again, these are US based trusts called a title holding trust. US-based LLCs are the beneficiaries of each trust. One LLC owns your equipment-holding LLCs and handles all of your leasing. So, you virtually own nothing, and control everything. That is, you own the LLCs. Then the LLCs hold the assets.
Protecting Real Estate
How do you do this with real estate? Well, it’s the same concept. Each piece of real estate is in a separate land trust, in this case. A land trust is similar to a title holding trust. Very similar. Each trust is owned by an LLC. That is, a separate LLC is the beneficiary of each trust. So, you have the privacy of ownership through the trust. You have the lawsuit protection if there’s a liability in any particular cubby hole. That way, you don’t have one big bunch of liability all swirling around on the same pot that owns the valuable equipment you use in business.
So, then when you’re sued personally the LLC protects you from losing your LLC or anything inside of it. Your lien strips all the equity by recording mortgages or deeds of trusts against all the properties. Your personal residences, by the way, don’t involve an LLC because that will affect the tax benefits of home ownership. Thus, you own your home in trust, only. So, some contingent fee attorney a search on you and it looks like you owe nothing. This is because there is nothing in your name, personally. Moreover, if they do proceed with a lawsuit you have the proper protective measures in place.
The liens recorded against your equipment are simply lines of credit. So, if you need to pull the trigger, you can. We have another third-party entity internationally that will actually acquire these liens and deposit the proceeds in your offshore trust (that we will establish for you). You know have a deposit statement to show that you have distributed the proceeds from the lines of credit. You can demonstrate that this is a real legitimate loan. Then, at that point, the loans are transferred to the third-party company and that will put the proceeds in your asset protection trust.
Now, we are talking about protecting cash. Cash might be one of your business’s most valuable assets. We protect cash using an offshore asset protection trust. We are not here to go into detail about offshore trusts. So, we will just talk about them briefly. This is how this works. When the US judge says “give me the money,” the trustee offshore, who is not under that judge’s jurisdiction, says “no, not going to.” The Cook Islands, south of Hawaii, is the number one place for this type of trust.
So, why do we use an international trust? Simple. It works. We establish them as well and we have a video specifically talking about this particular trust, how it works, and how to get you comfortable with then.
So, what do you do? What’s your emergency plan? Well when the bad thing happens and the lawsuit does come flying at you remember, your main company owns nothing. It leases the equipment and other business assets. In turn, you put your cash into the offshore asset protection trust. Thus, your international trustee can refuse to comply with orders to bring funds back. It makes it pretty difficult for you to get into trouble in the scenarios we are talking about. That is because the trustee is the one refusing to comply, not you. You are fully compliant. The liens are transferred offshore, so a third-party international company that now holds the recorded those liens against the equipment or real estate.
The international company then deposits the proceeds into a “you can’t touch it account” in your offshore trust. That way, we’ve stripped the equity out of equipment and out of your real estate. So, that is how to protect assets that you use in your business from lawsuits.
So, we just talked about how to protect business assets from lawsuits. We covered how to protect real estate from lawsuits. We discussed the different techniques you can use. Keep in mind, and we have to legally say, not to consider this legal or tax advice. For those things, check with an attorney or accountant. Thus, this is a general overview on how to protect assets from lawsuits. Also know that an asset protection strategies are tailored to the individual. They are not a one-size-fits-all solutions. So, if you have questions or if you want more information give us a call at the number that’s on this page or fill out an inquiry form above.