“The best way to prevent financial disaster is to make sure that the threat never becomes a reality.” -Larry Baldwin

I want to present a time-tested method for protecting your accumulating personal wealth. You may have a lot of assets or you may have a little. Whatever your individual situation is, I want to assure you that someone is waiting to take it away from you at the least provocation. Protecting your family’s financial future is your responsibility and specific well-planned legal steps should be taken to protect your wealth from such things as frivolous lawsuits, creditors, probate, MedicAid spend-down, Estate Taxes and other challenges to your estate after your death.

Strategy and Structure

The effective protection and preservation of assets is based on a “strategy” of divesting yourself from the private ownership of your assets and organizing those assets into independent legal structures and separating those assets by their degree of liability risk. It is far better to manage your assets and enjoy them, than to personally “own” them and leave them vulnerable to all of the liability risks that we face in today’s litigious society.

Let me offer an example.

Assume you hold all your assets in your personal name, a Living Trust, or a fictitious business name (dba). All of your assets, both business and personal, are under one ownership… yours! If you were to accidentally hit a bike rider in your car… perhaps you were talking on the phone or tuning your radio…and didn’t see them; and if they were seriously injured and perhaps lost the use of their legs, or worse…most certainly a lawsuit would result and you would be responsible for any losses or injuries plus punitive damages which could amount to millions of dollars. Your private liability and auto insurance does not cover punitive damages… so who pays the damages? You do… with all of your assets on the line, you most certainly would lose everything you have worked your lifetime for to secure your future.

However, if you don’t “personally own” those assets they can’t be taken away from you because they don’t belong to you. Therein lies the effectiveness of this strategy. Constructing an “ASSET PROTECTION FORTRESS” that will protect your assets outside of your personal ownership and hold them safe from any losses due to any legal attacks against you personally. The fact is, if you don’t personally own the assets nobody can take them away from you.

However, you never want to hold all assets of every type in the same entity. Just as your investment advisor counsels you to diversify your investments, it is also imperative that you diversify your risk of loss. Consequently, we never advise you to put all your assets in one place. Always think in terms of minimizing losses if they occur. So here is the “strategy”… Separate your assets into different legal entities according to their potential for liability and loss. For example, never put your cash in the same entity with your car. If you hit or kill someone with your car, the owner of the car will be sued and you don’t want your cash in the same entity that owns the car and vulnerable to the lawsuit!

A strategy created on this model usually involves establishing more than one holding or operating entity, and

separating ownership of your assets into those entities by degree of risk. This allows maximum protection. If you own investment properties, you may need a Land Trust for each property. If you have stocks, bonds and cash, you may use separate Limited Liability Companies to hold and manage those particular assets because they don’t create any liability. If you have a lot of life insurance, you may need an Irrevocable Life Insurance Trust to protect your death benefit from the Estate Tax. If you own a business or tenant occupied investment property, you will want to isolate that liability from your personal assets because every employee, tenant, or customer is a lawsuit waiting to happen, not to mention product liability if you manufacture or sell a product or service.

One of the main advantages to this strategy is your ability to manage the entities. You operate them like the CEO of a company. You are the one who decides what happens, you control the money, and you make all the important decisions. You personally own nothing, but YOU are in charge! You are the President of your financial company. If you have reason to start or buy a new business, you simply build another structure to hold it and keep it separate from your existing businesses and personal assets. If you acquire another investment that has liability risk, you separate it from your other assets by isolating it in its own entity.

The wonderful thing about this strategy is that this system is no more difficult to manage than what you

are already experiencing with your existing business or system. You may have a couple more tax returns to file

but the overall effect of this well-managed strategy tends to reduce taxes, making it well worth the extra effort and expense.

Perspectives on Cost

Before discussing the costs of creating a FINANCIAL FORTRESS, it’s helpful to put costs into perspective by discussing the cost of failing to protect your assets.

If you are sued… and one in 13 American families are sued at least once in their lifetime, you will be compelled to defend that lawsuit regardless of its merit or you will default and lose automatically. This will require you to defend yourself by hiring a lawyer to defend you and pay all the associated legal expenses. Then if you lose the lawsuit, your assets will be in dire jeopardy if you have not protected them properly. Forget about transferring them to your kids to get them out of harms way or moving them after you have been served with a lawsuit, such maneuvers are not allowed by law, its called “Unlawful Transfer of Assets”, and it’s a crime. The average retainer and cost for an attorney to defend you is in excess of $20,000 plus court costs and it could be much higher depending on the lawsuits complexity. And, the attorney always gets paid whether you win or lose. When your assets are structured out of harms way, there is nothing to take away from you in a lawsuit giving you a real advantage in avoiding the lawsuit altogether. But most importantly, if you lose the lawsuit, you don’t personally own anything for them to take. This fact alone often discourages the lawsuit in the first place. If they can’t get anything by suing you…why would they sue you?

If you have deep pockets, (i.e. have accumulated a lot of wealth), your Estate Taxes can run into millions of dollars. The current Estate Tax exemption is over five million dollars per person, payable within 9 months of the death of the second spouse. Everything over that amount will incur a tax of 45% of the excess over $5 million.! A FINANCIAL FORTRESS will eliminate all Estate Taxes and allow your family or heirs to continue to manage your assets indefinitely beyond your lifetime without any Estate Tax consequences.

If your assets are exposed when you die… if you have a Will… or no Will at all, your entire estate will go into Probate and suffer costs as high as 15% of the GROSS value of your estate in Probate costs and additional attorney fees, and the Probate lockdown of your assets can last for years, making it impossible to liquidate assets the family may desperately need. Any one of the above situations could prove to be financially devastating to you and your family, and their losses could mount into the tens or hundreds of thousands of dollars.

Notes

Note: Tax qualified assets such as IRA’s, 401k’s, 403b’s cannot be protected from the liabilities discussed in this material so long as they remain in that tax status. They are attached to you personally by the IRS and maintain their tax qualified status only as long as they are in your personal name identified by your Social Security Number. Changing their ownership into any other entity ownership would invalidate their tax qualified status and related taxes and/or tax penalties would become due.

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• View my complete estate planning presentation Protecting your Family with a Living Trust.

• Read my Financial Checklist & Service Model.

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