Asset Protection 101

Most people are not familiar with the term “Asset Protection” (hereinafter AP).

You might think the term has something to do with protecting your valuable assets from someone or something and you’d generally be correct.

Let me define what I mean when I say AP:

AP is protecting your money/assets from anyone
or anything that can potentially take them!

That definition isn’t much help without context so let me provide some.

-Your #1 guaranteed creditor every year is the IRS (the IRS takes your money)
-The stock market can be a creditor (you can lose 20%, 30%, 40% + at any given time)
-In retirement one of your largest creditors will be long-term care (LTC) expenses

So, helping clients reduce their taxes, avoid large downturns in the stock market, and protect against the LTC expenses in retirement is a form of asset protection planning.

The topic for this newsletter, however, is NEGLIGENCE  lawsuits. Why should you care about protecting your assets from negligence lawsuits? The following example says it all!

Let me ask a few questions to get started:

1) Do you own a cell phone?
2) When was the last time you texted and drove?
3) Do you drink and drive?

Most people answer yes to 1), some time on the last day to 2), and an emphatic NO WAY to 3).

What if I told you that texting and driving is SIX times more dangerous than drunk driving*?

Would that motivate you to start thinking about protecting your valuable assets?

The fact of the matter is that if you own a car and a cell phone you are putting ALL of your

UNPROTECTED assets at risk of negligence lawsuits.

Protecting valuable assets with Limited Liability Companies (LLCs)

What I’m going to explain is fairly simple, very powerful, and something most attorneys, CPAs, financial planners, and insurance agents are totally unaware of.

Let’s identify a few valuable assets to protect:

1) Brokerage/Investment account
2) Vacation property
3) Rental property

How do most people own these assets (how are they titled)? Most of the time they are owned personally (in your own name or jointly with a spouse).

Anything you own personally (in your own name) is 100% at risk to creditors (with some exceptions in certain states like IRAs, cash value life, your personal residence, and annuities). And, FYI, revocable estate planning “trusts” provide NO asset protection.

                How can an LLC be helpful? It’s super simple. All you have to do is transfer ownership of your valuable assets to a “multi-member” LLC set up in the correct state (AK, NV, AZ, etc.) and the assets will be protected from negligence lawsuits.

For example, say you have a $500,000 rental property owned in your own name. You would simply capitalize an LLC with the property (non-taxable event) and, once owned by the LLC, it would be protected.

The same goes for a brokerage account and other assets.

Separating liability assets from non-liability assets—you do NOT want a non-liability asset like a brokerage account in the same LLC as a rental property (a liability asset). If there is a liability issue with the rental property “all” assets inside the LLC that owns it are then at risk (and since a brokerage account has no liability, you would want it in its own separate LLC).

 Simple but incomplete education on LLCs

The goal of this newsletter isn’t to go into the fine details of how to set up and use an LLC. They are not difficult, but that’s not the point of the newsletter.

The point of the newsletter is to get you thinking about what assets are worth protecting and to let you know that using LLCs is a terrific way to protect them. It’s not that the details are not important, but they are not important when the goal is awareness.

Want more information on the proper use of LLCs for asset protection?

Want an asset protection checkup?

For either, simply send me an email and I’d be happy to set up a call to go over your situation and more fully explain the details of how to use an LLC and other tools for asset protection purposes.