Resource Centers:(News, information, and tools to support your practice)
A nanny who worked for a wealthy business owner was driving her employer’s children to school. While talking on her cell phone, she ran a red light and crashed into another car. The accident killed a family of three. State law stipulated that in such cases, both the driver and the vehicle owner were liable. Both the business owner and his wife were named on the car’s registration — as they were on all of their personal and professional assets. Due to the lack of protection planning, the accident ultimately put all of the business owner’s assets in jeopardy. You spend most of your working life building your practice. Could you survive the cost of a catastrophic loss? The United States is host to 95 percent of lawsuits filed worldwide, according to The Sovereign Society (www.sovereignsociety.com). A new lawsuit is filed every 30 seconds, and if you own your own business, you have a one-in-four chance of being sued this coming year. “The toll of just one lawsuit can be so great that, guilty or innocent, many small firms end up shutting their doors, lay off their employees, and vanish into legal graveyards,” said Jack Fans, president of the National Federation of Independent Businesses. THE RULES What can you do to protect your personal and business assets from frivolous lawsuits and the possibility of judgments? Here are seven rules that can help protect what you have built: 1. Protect your assets now. Asset protection is the process of arranging your affairs to minimize the risk of your wealth being seized by prospective litigants, future creditors, or some taxing authority. The time to protect your assets is before you need them protected. 2. Use multiple safeguards. Since no perfect structure exists to protect all assets all the time, you’ll need to look at a variety of tactics to protect your assets in all contingencies, including maximizing your contributions to a 401(k) plan, pension, or IRA. Additionally, update or find low-cost umbrella insurance. The insurance offers protection but, if litigation were to arise, a plaintiff’s attorney might become fixated on hitting the umbrella-insurance policy and chase the limits of the policy to the exclusion of other personal assets. 3. Title assets appropriately. One of the best, and simplest, asset-protection strategies is to title things appropriately. If you own your office building and it is in your name, for instance, a victorious plaintiff can claim it. To forestall such a maneuver, create an entity, such as a limited liability company (LLC), to hold the title. Likewise, you could set up separate ownership of vehicles for each rental property you own. That way, if a tenant sues you, that plaintiff cannot go after any of your other buildings to satisfy a judgment. 4. Mortgage your home to the maximum. Make your home unattractive to creditors by mortgaging it to the hilt or by creating a qualified personal residence trust. 5. Do not trust that a spouse defense will save your assets. Married business owners occasionally put all of their worldly goods in their spouses’ names for safekeeping. That tactic may or may not work, depending on where you live. In many states, signing property over to a spouse is better than owning it together, because a creditor can force a couple to liquidate jointly held assets to collect the debtor’s share. Of course, letting a spouse own everything puts the other spouse in a vulnerable position if the couple later gets divorced. If the spouse is merely holding assets the other spouse still controls — by writing checks on a bank account, for example — a creditor still has a shot at those assets. To qualify for protection, the transferred assets must truly become the spouse’s property. Shifting assets to a spouse may be in vain in states that have community-property laws, such as California and Texas. In these states, a married couple jointly owns all property acquired during the marriage, even if the property is titled in only one name. 6. Learn about asset-protection strategies. Understand which asset-protection strategies work and which ones do not. For example: If your goal is to make your assets creditor- and judgment-proof, but you are conservative and don’t want to invite future problems, as a general rule, you should stay away from traditional offshore protection trusts, which are a target of the IRS. If you establish a trust, you are required to notify the IRS, and by doing that, you may become a target for examination by the IRS. The IRS takes the position that an offshore asset protection trust means you are trying to hide something. 7. Look for jurisdictions offering natural litigation-protection standards. Switzerland and Liechtenstein are two countries offering these standards. Swiss annuities, similar to their U.S. cousins, are a contract between an insurance company and the policyholder. Switzerland’s strict privacy laws, however, make the Swiss annuity creditor- and judgment-proof, and Switzerland does not honor U.S. judgments. Protect your assets with estate planning in mind. The best defense is to use a variety of estate-planning tactics and keep your assets out of reach of judgments before the need arises. |
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Obey 7 rules to
protect your assets
Darrell Aviss is the managing director of SwissGuard International, GmbH, a Zurich-based financial consulting firm that provides Swiss wealth management and asset protection planning to high net-worth international investors. He can be reached at 800-796-7496, by e-mail at