| GeneralGeneral Questions |
What is asset protection?
Asset protection is a field of law dealing with shielding assets from claims of creditors. Asset protection does not deal with estate planning or tax planning, but simply protecting assets from financial predators.
How does asset protection work?
Asset protection is based on the basic principle that virtually any and every asset that you own can be seized by a creditor. Any asset that you do not own cannot be seized from you. Consequently, asset protection aims to remove you from the legal title to your assets, but allows you to continue controlling your assets and enjoying the economic benefits of your assets.
Does asset protection discourage lawsuits?
Yes. Plaintiffs will come after you if they think there are assets they can seize. If they cannot seize your assets, or if you make it sufficiently expensive to seize your assets, they will, often, not bother to sue you in the first place.
Does it really work?
Yes. In practice, a well-structured asset protection plan will discourage the plaintiff from suing you in the first place. Even if you are sued, an asset protection plan will make it very difficult, and sometimes impossible, for a plaintiff to reach your assets.
What are the statistics on the effectiveness of asset protection?
Our roughly compiled statistics are as follows. Approximately 82% of clients come to us after being sued or after something "bad" happens to them. Of these 82%, plaintiffs cease their collection efforts entirely some 90% of the time. 10% of the time our clients negotiate a favorable settlement with the plaintiff. While past performance is not a guarantee of future results, a well structured asset protection plan should be extremely effective.
Is it ever too late to plan?
No, but there are exceptions. While one needs to be mindful of the fraudulent transfer laws, one also needs to consider the practical implications of planning. Often, even if a lawsuit has been filed against you, it is not too late to plan. We will make that determination on a case by case basis. Generally, even if you are planning after the fact, you can achieve very favorable results and protect your assets.
Is asset protection complicated?
No. While some unscrupulous promoters aim to sell their unsuspecting clients over-complex structures just to be able to charge more money, complexity does not necessarily equal more protection. Sometimes something as simple and inexpensive as a limited liability company may be your best bet.
Is asset protection expensive?
It varies, but generally no. And it is certainly not as expensive as losing all your assets to a creditor. It is always cheaper to plan ahead of time, and it is always cheaper to use domestic structures. Costs and fees will also vary depending on who you retain, how aggressively the plaintiff will pursue your assets, to what extent you want to go to protect your assets. For example, you can hire a Nevada promoter to set up an LLC and pay $300. You will be very happy with that price until you realize that you needed a trust and not an LLC and you may now lose your assets. Do not shop for asset protection based on price, shop based on competence.
How do I pick the right asset protection attorney?
First, avoid promoters at all costs. They usually aim to sell you a product, like a Nevada corporation or a foreign trust. That may not necessarily be the best structure for you. Every asset protection plan should be custom tailored. Second, when picking your attorney make sure that asset protection is the attorney's primary practice area. Third, make sure that the attorney has tax and estate planning expertise, because tax and estate planning issues are always implicated in asset protection. Finally, make sure that the attorney has experience defending his or her asset protection structures in court.
If I have insurance, do I need asset protection?
Yes. As a matter of fact, the vast majority of our clients have insurance. Yet, they still need our services. While insurance will cover most claims, it will not cover all claims, and you may have insufficient policy limits. Everyone should have umbrella insurance, but is very difficult to get coverage in excess of $4 million. Many claims will exceed that amount.
Is asset protection legal and ethical?
Yes, if it is implemented in a legal and ethical manner. Asset protection relies on common corporate, estate planning and tax planning structures.
Does my living trust protect my assets?
No. Because you have the power to revoke a living trust, a creditor can force you to revoke the trust. The assets then revert to your name, and the creditor will then get them from you. In many states, the creditor can go after the assets of your living trust directly.
Does hiding assets work?
Sometimes. If you are dealing with a lazy or an unsophisticated creditor, hiding or camouflaging assets may work. We do not recommend it. Many creditors are intelligent, knowledgeable and aggressive. They will use private investigators to unearth your assets and will then seize the assets from you. With a proper asset protection plan you should be able to disclose the plan to your creditors, and it would still effectively shield your assets from creditors' claims.
Would a Nevada corporation protect my assets?
No. If you own valuable assets through a corporation, Nevada or otherwise, a creditor will be able to seize the stock of the corporation from you. Once the creditor owns the stock, the creditor can liquidate the corporation and get its assets. Any corporation would do a poor job of protecting your assets. Instead, use a limited liability company or a limited partnership.
Can I simply gift assets to family members?
Yes, but it will not be an effective asset protection tool. Any intelligent creditor would challenge a gift to family members as a fraudulent transfer and set it aside, allowing the creditor to reach the transferred assets.
Are there tax consequences to asset protection?
Not if the plan is properly structured. Asset protection should be tax neutral. This means that your bottom line tax liability should not change. All structures used in asset protection are either disregarded for income tax purposes, or are flow-through entities like partnerships or S corporations.
Do I need to worry about property tax reassessment?
Not with a carefully structured plan. We make certain that any time we are planning to protect your real estate, there will be no change in ownership and no reassessment for property tax purposes.
Can I keep control over my assets?
That depends on a multitude of factors. Often times the answer is yes. Sometimes, you may have to give up control, at least for a period of time, and trade it off for increased protection.
How is Klueger & Stein, LLP different?
All our lawyers have a solid background in tax and estate planning, some are certified tax law specialists. All of our lawyers have a stellar nationwide reputation and impressive credentials. All of our lawyers are AV rated by Martindale-Hubbell (the highest rating awarded to attorneys). All of our lawyers are published authors and highly sought after speakers. All of our lawyers dedicate at least 90% of their practice to asset protection. All of our lawyers have defended their own asset protection structures in court, in arbitration, in mediation, and in settlement negotiations with creditors. Anyone can set up an LLC, or a residence trust or complete an equity strip. Not many know when to use which structure and their relative effectiveness under given circumstances. Having represented hundreds of clients, we hold all the answers.
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What is asset protection?
How does asset protection work?
Does asset protection discourage lawsuits?
Does it really work?
What are the statistics on the effectiveness of asset protection?
Is it ever too late to plan?
Is asset protection complicated?
Is asset protection expensive?
How do I pick the right asset protection attorney?
If I have insurance, do I need asset protection?
Is asset protection legal and ethical?
Does my living trust protect my assets?
Does hiding assets work?
Would a Nevada corporation protect my assets?
Can I simply gift assets to family members?
Are there tax consequences to asset protection?
Do I need to worry about property tax reassessment?
Can I keep control over my assets?
How is Klueger & Stein, LLP different?
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| Domestic StructuresDomestic Structures |
Why is community property bad for asset protection?
Under community property laws each spouse is deemed to own all of the community property assets. Because a creditor can seize from you all the assets that you own, if either spouse is sued, all of the spouses' assets are exposed to the lawsuit. In non-community property states (like New York), the separate property of one spouse is not subject to the claims of creditors of the other spouse. Fortunately, all community property states allow their residents to opt out of the community property system.
How effective is a prenuptial agreement?
Very. A prenuptial agreement is one of the most effective asset protection tools available. The separate property of one spouse is not reachable by the creditors of the other spouse. Because a prenuptial agreement cannot possibly be a fraudulent transfer, it can never be challenged by a creditor. A prenuptial agreement can be structured so that it does not address issues like divorce, alimony, etc., but simply protects both spouses from each other's creditors.
When should I consider a transmutation agreement?
Any married couple with substantial assets should consider a transmutation agreement. This is a simple written agreement that allows spouses to easily convert their community property into separate property. The transmutation agreement does not address divorce, alimony or any other issue. It simply ends community property and creates separate property. This is usually the very first step in the asset protection planning process for spouses.
Can I simply quitclaim assets to my spouse?
Not effectively. Some states require a written agreement, like the transmutation agreement, in order for the quitclaim to be effective. Even then, a quitclaim, like a transmutation agreement, may be subject to a fraudulent transfer challenge.
How do I protect my residence?
There are approximately 6 different techniques of protecting a personal residence. They include: the residence trust, a friendly equity strip, a bank equity strip, a sale to a friendly party, a sale to a third-party, a transfer into a single-member LLC. There is no one solution that works best for everyone. We will make the determination of what would work best for you, on a case by case basis.
Does the homestead exemption protect my residence?
In some states, the homestead exemption will protect your residence. For example, in Florida and Texas the exemption may be unlimited. In most states the exemption is in the $50,000 to $100,000 range. For example, in California, the homestead exemption may be $50,000, $75,000 or $125,000, depending on your age and living arrangement. In the current real estate market, the homestead exemption is not very meaningful.
How effective is a friendly lien?
Not very. A friendly lien is asking your uncle Jack to record a deed of trust against your property. The idea is that the lien will "eliminate" the equity in your real estate, and discourage the creditor from suing you. That may work if the creditor is lazy or incompetent. Any competent creditor will be able to set aside a friendly lien without any difficulty. We have seen it happen.
When do I use an LLC?
Limited liability companies and limited partnerships are used very frequently in asset protection. They are used to protect such assets as investment real estate, intellectual property, operating businesses and other. These entities are not used, and should not be used, to protect a personal residence. Depending on your circumstances, they should not be used to protect liquid assets.
What is a family limited partnership?
A family limited partnership is a marketing term used to describe limited partnerships. It is nothing more than a limited partnership where all the partners are family members. Consequently, a family limited partnership works in exactly the same way as any other limited partnership or limited liability company to protect your assets.
Why are LLCs better than corporations?
LLCs and limited partnerships are better than corporations because unlike corporations these entities protect their own assets from your lawsuits. For example, if you own assets through a corporation and you are sued, your creditor will be able to seize the stock of your corporation. Once the creditor seizes the stock of your corporation, they will be able to take the assets you hold in the corporation. Because interests in LLCs and limited partnerships are not subject to attachment, they cannot be seized by a creditor. Therefore, the assets you hold in these entities are protected.
In which state should I form my LLC?
It varies. We frequently use Delaware and Nevada. But we also frequently use California for our California clients, or Florida for our Florida clients. We also frequently form LLCs offshore. Depending on your assets, which states they are in, and other factors, we will help you determine which state is best for you.
Should my asset protection trust be irrevocable?
Yes. If you have the ability to revoke a trust, like you do with a traditional living trust, a creditor can force you to do so, and then will get your assets. An irrevocable trust is treated as a separate legal person. If you have no visible control over the assets of the trust, your creditors will not be able to reach the assets of the trust. In many states an irrevocable trust simply means that no one can force you to revoke the trust, but you retain the ability to do so, at your discretion.
How do I retain control over an irrevocable trust?
There are a number of ways. Most importantly, you should appoint a friendly trustee. A friend or a family member who would look after your best interests and who would comply with your requests.
Is my IRA protected?
Not under federal law, and not under the laws of many states. For example, California will protect the IRA only if you have no other assets, and even then the protection is very limited. Anyone who has a substantial IRA should consider rolling the IRA over into an ERISA-qualified plan, like a 401(k) plan.
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Why is community property bad for asset protection?
How effective is a prenuptial agreement?
When should I consider a transmutation agreement?
Can I simply quitclaim assets to my wife?
How do I protect my residence?
Does the homestead exemption protect my residence?
How effective is a friendly lien?
When do I use an LLC?
What is a family limited partnership?
Why are LLCs better than corporations?
In which state should I form my LLC?
Should my asset protection trust be irrevocable?
How do I retain control over an irrevocable trust?
Is my IRA protected?
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| Foreign StructuresForeign Structures |
Are offshore structures always more protective?
Yes. Simply by moving the governing law of the LLC or a trust offshore, you may be forcing the plaintiff to litigate offshore, which is always more expensive for the plaintiff than litigating domestically. Many offshore jurisdictions have asset protection built into their laws.
What are the advantages of a foreign trust?
When properly structured, it makes your liquid assets unreachable. Often times, even if you set it up after the lawsuit has been filed.
Are there disadvantages to foreign trusts?
It is usually more expensive to set up than other asset protection structures. However, if you are facing the possibility of losing all your assets to a creditor, it always makes sense to pay for a foreign trust.
What are the tax consequences of foreign trusts?
None. A foreign trust will neither increase nor decrease your taxes. It is treated in exactly the same manner as your living trust. You will continue to report the income of the trust on your income tax return.
Are foreign trusts always effective to thwart creditors?
Yes, if properly structured. In the three primary foreign trust jurisdictions (Saint Vincent, Cook Islands, Nevis) there have been over 15,000 asset protection trusts set up. There have been approximately 6 reported cases of creditors successfully piercing a foreign trust. All 6 cases involved trusts that were poorly drafted, and some included debtors who engaged in egregious criminal conduct.
Can I keep my money in the U.S.?
Yes. Just because the trust is governed by the laws of a foreign country, it does not mean that the trust holds its money in that country. The trust can have a bank account in the U.S., own a mutual fund in Switzerland, and real estate in Tuscany. However, if you are being pursued by a very aggressive creditor, we recommend that the assets of the foreign trust be outside the U.S.
How can I make sure that no one steals my money?
Some clients worry that the foreign trustee supervising their trust may run off with their money. We work with large and very reputable trust companies and we have maintained relationships with these trust companies for years. But, if that is not enough, we can set up an advanced foreign trust structure that would allow you to remain in complete control of your assets. No one but you will have signature authority on the bank account of the trust.
Is it safe to invest money offshore?
Yes, and often much safer than investing in the U.S. Many European financial institutions have been around for hundreds of years. They have survived world wars and financial catastrophes. These are usually very large institutions that simply do not advertise their services in the U.S. and are not well known to U.S. investors. It surprises many Americans to find out that many of the world's largest banks are names that they have never heard before. For example, BNP Paribas is larger than either Bank of America or JP Morgan Chase.
What are my investment choices?
There are numerous investment choices available offshore. Private bank accounts (currently paying between 5-6%), brokerage accounts (with returns ranging up to 30%), guaranteed annuities 9with returns between 1-10%) and many others. While we are not investment advisors, we would be happy to introduce you to our contacts in the offshore investment world so that you can learn about your options.
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Are offshore structures always more protective?
What are the advantages of a foreign trust?
Are there disadvantages to foreign trusts?
What are the tax consequences of foreign trusts?
Are foreign trusts always effective to thwart creditors?
Can I keep my money in the U.S.?
How can I make sure that no one steals my money?
Is it safe to invest money offshore?
What are my investment choices?
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