Assets Protection
Asset protection planning is proactive legal action that protects your assets from future creditors, divorce, lawsuits or judgments.
ASSET PROTECTION
Asset protection planning is proactive legal action that protects your assets from future creditors, divorce, lawsuits or judgments. This involves a series legal and lawful techniques that can deter a lawsuit. It can also provide you with settlement negotiation power. Most importantly, it can help prevent the seizure of your assets in the event of a judgment.
At the core of any asset protection plan is a professional and legal examination. An expert can assess one’s financial situation, assets, risks as well as personal or family goals.
There is a variety of legal techniques you can implement that provide a range of protective features. This can be from simple financial privacy all the way to judgment-proof asset protection. The planning is tailored to the assets, risk and comfort level of the individual or family seeking protection.
For the most benefit, planning should take place before the need arises. However, there are options that provide asset protection after lawsuit is filed. Asset protection is a grand form of financial insurance. It should be implemented well in advance of the need for it in order to avoid a fraudulent conveyance ruling. (Keep in mind this is merely a civil matter, not a criminal one.) Plans are much more effective for debtors who have the foresight to set them up in before a lawsuit strikes. So, get complete to understand your needs, but once you do, take action.
Asset protection planning is creating a complete financial plan taking one’s entire situation into perspective. The legal and financial vehicles used range from insurance policies, state homestead protection laws, business vehicles are estate planning instruments. In more involved cases this often includes multiple legal jurisdictions. This includes foreign countries where the laws are more favorable to the defendant or debtor.
These concepts are designed to deter a legal opponent from pursuing you. They should make it
complicated, if not impossible, for someone to take your assets in a lawsuit if a judgment result.
With proper planning an individual can protect his or her lifetime of accumulated wealth,
savings, real property, investments, even future income.
The Benefits
When you establish a proper plan, a legal opponent or creditor will have to recognize that you
are no easy target. Little to no assets are within reach of a judgment. This puts the debtor in a
powerful position. This can deter a lawsuit, or in the event of a lawsuit or litigation, provide
substantial negotiation leverage.
Financial Privacy
One of the first benefits of implementing simple legal vehicles to protect assets is privacy of
ownership. You can own real property and other forms of wealth privately, therefore reducing
your “visible” net worth. This can reduce the risk of frivolous lawsuits or a predatory legal
situation
When a contingent fee lawyer reviews a case, he will perform a public records search looking for
assets available that he can liquidate to satisfy a judgment. No assets tied to an individual’s name
drastically reduces the chances of a lawyer taking the case – lawsuit deterrence.
All of an individual’s or a family’s assets, investments, savings, property, business income and
real estate can be owned privately through a variety of legal vehicles and business entities.
What does a corporation consist of?
Lawsuits and litigation are expensive. They are financial vampires. When you protect your assets
through a well-thought-out plan there is less to lose. This is the equivalent of taking your chips
off the table when your stakes are high.
The only real winners in a lawsuit are the lawyers. Even if you win a lawsuit, you are still out
your own legal expenses. They can even be substantially higher than the lawsuit, itself.
Preventing a lawsuit is more important that winning a lawsuit. Asset protection planning is a key
measure that can prevent you from being involved in a long, drawn-out legal battle.
The final straw in any plan to protect assets is this. Did it prevent of the seizure of your assets?
Achieving this may require powerful international legal tools, such as an offshore trust. This
is because such action can separate your assets from the reach of the local courts. Thus, it places
your assets out of reach of a creditor.
Asset protection planning can be very broad in scope. It starts small, such as carrying auto
insurance. It can also include multiple legal tools and business entities using local and foreign
jurisdictions. The choices depend on the protection needs, risk and comfort level of the
individual.
The primary vehicles for estate and asset protection planning are trusts, limited liability
companies, family limited partnerships as well as corporations and LLCs, both foreign and
domestic.
There a few options that provide protection of one’s assets using legal vehicles and business
entities in one’s home jurisdiction. The introduction of domestic asset protection trusts (DAPTs)
is a relatively new thing in the U.S. Such legal entities can provide mid-level protection for
property owners, physicians, small business owners and provide protection against internal
liability.
The most effective asset protection plans involve a network of legal entities and structures
offshore. Used are some of the safest and strongest jurisdictions in the world. The best way to
completely bullet-proof the protection of assets is to remove them from one’s home legal
jurisdiction. Many countries do not recognize foreign court orders. So, when you move your
assets to a legal jurisdiction outside of your domicile you place them outside of the reach of legal
predators. Paced in the proper vehicle, such as the offshore trust, this type of planning can offer
the utmost in protection.
Foreign jurisdictions cater to investors seeking safe harbor. Many of them offer tools to shield
wealth using legal statutes strongly favoring the debtor. Corporations, LLCs, trusts, banking as
well as investment accounts are available that diversify and secure one’s financial holdings.
The most protective laws in the world, the most flexible legal systems and investor-friendly
laws are in offshore jurisdictions with longstanding case law histories of protecting personal assets.
Anyone with something to lose should at least consider protecting it. Most people are under the
impression that asset protection planning is strictly for high net worth individuals. However, the
contrary is also true. The best illustration of this is to compare a judgment of $350,000 to a
multi-millionaire and a family with a modest home, savings and income. In the case of the
millionaire the judgment is a fraction of the total net worth. However, in the case of a family, it
could be almost all of it. So, who should consider creating an asset protection plan? Both.
Asset protection vehicles are usually tax-neutral entities whereby income tax responsibility
passes through to the taxpayer. There may be tax-saving measures that you can implement. But
commonly, protective planning is tax neutral.
impression that asset protection planning is strictly for high net worth individuals. However, the
contrary is also true. The best illustration of this is to compare a judgment of $350,000 to a
multi-millionaire and a family with a modest home, savings and income. In the case of the
millionaire the judgment is a fraction of the total net worth. However, in the case of a family, it
could be almost all of it. So, who should consider creating an asset protection plan? Both.
Asset Protection Planners, Inc offers a personalized approach to your planning. We take our
clients by the hand and guide them. We inform and educate them and their attorneys on available
options so that they can make confident decisions throughout the process. This area of law is not
one in which professionals need to get excessively creative. Understanding the laws and features
of these legal instruments, we can create a plan using tools and combinations of legal vehicles.
We use strategies that are proven to work in similar situations and that are backed by solid case
law.
Probate is a judicial process that is required with or without a will, where the court determines
the value and distribution of a deceased person’s property. A revocable living trust can avoid
probate and save you thousands of dollars.
The Disadvantages of Probate are:
- Court Fees
- Length of time probate takes
- Attorney Fees
- Disclosure of personal finances
- Beneficiaries must wait till end of probate to use assets
A Living Trust is NOT subject to probate, a living trust’s advantages are:
- Avoids probate
- Control of your own assets
- Protects your privacy
- Prevents the court from controlling your assets
- Avoids the high costs of probate
Assets can be transferred immediately instead of taking months or years.
Creating protected assets is achieved by drafting an asset protection plan. This process prevents assets from being seized by creditors or through legal claims. Assets of the debtor, known as nonexempt assets, are restructured as assets or exempt assets that will be unable to be seized in the event of a claim or judgment.
An asset protection plan should be drafted long before any claim is made. When creating the plan, overall goals should be considered. These include:
- What are your short-term financial goals?
- What are your long-term financial goals?
- What is your estate planning goals?
A proper plan created before a claim is made will prevent any issues when attempting to protect assets. If a plan is made after a claim, they will most likely be reversed as it will be seen as a fraudulent transfer of assets.
Each type of asset you are looking to protect will have different requirements. For example:
- Each portion of real estate should be put into a separate land trust. This prevents your name from appearing in a search of public records.
- The beneficiary of a land trust should be an LLC or limited liability company. When the property is in a trust, the property is protected from any legal claims made against you. This does not apply to your personal home because it falls into a separate tax category.
- When protecting cash, amounts of $100,000 or less will be most protected under an LLC. Nevis LLC, a Caribbean island, offers the most secure protection jurisdictionally.
- If more than $100,000 needs protection, an offshore asset protection in a location such as the Cook Islands would be the best legal option.
- Title holding trusts are used for automobiles to keep ownership private.
- Planning should always begin before a claim is made. If planning is attempted after a claim is made, the plan may be dismantled through fraudulent transfer law.
- If planning starts after a claim is made, problems will occur. The debtor and other participants could face responsibility for any attorney fees of the creditor and the possibility of a bankruptcy discharge will be in question.
- Insurance and asset planning protection are not the same. Insurance will help pay for legal fees, while asset planning protection will not.
- When planning, remember that trusts are for personal assets and business entities are for business assets. Trusts that are well-drafted and funded have proven over the years to hold up in legal proceedings. Business assets should not also be personal assets, such as a company car or truck.
- A balance between the asset and the debtor should be present when drafting a plan. If too much control is given to the debtor, a creditor may be able to successfully argue that the asset protection plan and the debtor are one and the same.
- Asset protection planning and tax and estate planning don’t always work together well. Gifts from an estate plan to beneficiaries may be seen as fraudulent transfers and the value of a home may be hindered by homestead exemptions resulting in the value of the home being stuck in the debtor’s estate.
- Offshore accounts may not matter if you are located in the United States. Repatriation orders require the debtor to return their money to the United States and have occurred recently in many legal cases. If this is not completed, a bench warrant may be issued to the debtor and they will remain in contempt of court until they comply.
- Bankruptcy is not guaranteed to relieve responsibility. Newer laws put in place in 2005 have made asset protection plans less likely to hold up in court.
- Overcomplicated plans won’t hold up. If an asset protection plan is difficult to explain, it may cause a judge to question the legality of the plan and consider that fraud may be taking place. Plans should be simple and easy to explain to anyone reading the document.
- Expect that all plan information will be known to anyone questioning the plan details. Any level of secrecy should be avoided when drafting the plan to avoid legal problems in the future as the result of an ex-spouse or disgruntled employee.
Asset protection plans are considered tax neutral, meaning that tax liability is not affected on any of the assets put into a legal plan. This includes worldwide income, which must be reported, or fines and criminal charges may be levied.
Partnership Agreement vs. Operating Agreement
Understanding a partnership agreement vs. operating agreement is important if you want to form a partnership.
Understanding a partnership agreement vs. operating agreement is important if you want to form a partnership. Limited liability companies, also commonly referred to as LLCs, implement an operating agreement to provide details on how a partnership will work. Without this document, companies doing business together will likely fail due to unmet goals and failed expectations between the parties.
The Importance of Creating a Partnership Agreement
A partnership operating as a non-LLC business is free to enter into a similar agreement called a partnership agreement. States do not require this in a business partnership relationship, but without a clearly defined partnership agreement, your business will fall under the standard rules of your particular state. A partnership agreement is always to the benefit of the business in that it allows the members/partners, not the state, to decide how the business will operate.
The terms LLC and partnership are used interchangeably. This is because most multimember LLC are taxed as partnerships, thus being referred to as an LLC or a partnership. Likewise, the terms members and partners are used interchangeably at times. This is because a multimember LLC has members and a partnership has partners.
Why Is a Clear Partnership Operating Agreement Important?
An operating agreement outline:
- Who owns the company?
- How many employees the company has
- How operations are to be carried out
- How disputes are to be handled
A clear partnership operating agreement is a cushion of protection against conflicts and misunderstandings. With no direction and defined methods of operation, disputes are almost inevitable. As previously mentioned, if there is no partnership agreement, then the state will virtually control how your business will operate and function.
How Are Operating and Partnership Agreements Different?
Like an LLC operating agreement, a partnership agreement is very flexible regarding how you and your partner want to operate your partnership. Profits and losses are specified, along with the duties and obligations of each partner.
The Uniform Partnership Act, known as the UPA, and/or The Revised Uniform Partnership Act, known as the Revised UPA, are the laws that rule partnerships in each state, with the exception of Louisiana.
These documents dictate what happens when partnerships have failed to implement a partnership agreement. They are the basic rules of operation for partnerships and can be used to effectively manage many parts of your business. The downside, however, is that they are designed as a one-size-fits-all solution and have the potential do more harm than good.
Why Are Partnership Agreements Unique?
Partnership agreements are unique; this is in part because of the flexibility to cater to the partners’/owners’ wishes. There are basic elements and obligations to be addressed in all partnership agreements to ensure the success of a joint venture.
The partnership needs to be identified, so the first thing to do is agree what you will name it. This could be the last names of the owners, first names, initials, or a fabricated name. When choosing a made-up or fabricated name, it is your responsibility to check and make sure it isn’t already being used.
Why Do Some Businesses Fail?
Many businesses with great potential have failed because of disagreements over contributions. This is a critical component to be discussed at the beginning of a partnership. The agreement should define who is going to invest in the business before it opens. In other words, who will pay for inventory, property, licensees, fees, and so forth should be addressed. Who will manage certain aspects when the partnership is up, and running are other elements that should be clearly outlined in the partnership agreement?
The Importance of Pinpointing Financial Needs and Monetary Allocations
Most likely, you and your partner do not share the same financial needs. Determining how and when profits and losses will be distributed is an important area of the agreement that needs clarity and understanding.
How Can Disputes Be Settled?
It is important to discuss how disputes will be settled. For example, when no agreement can be reached and a decision has to be made, a unanimous vote of all partners would be executed. An agreement on the appropriate action to take beforehand provides guidance when conflicts arise. Partnerships can be very rewarding, especially when clear and agreed-upon purposes and objectives are put in place. Most importantly, be sure that the partnership is developed as the result of a shared vision and values.
Nevada Corporation Doing Business in California
If you are a Nevada corporation doing business in California, there are steps to follow to ensure that your business is in compliance with state regulations.
If you are a Nevada corporation doing business in California, there are steps to follow to ensure that your business entity is in compliance with state regulations. This involves separating your personal and business assets and obtaining and maintaining compliance at:
- The Secretary of State level.
- The business credit level.
- The state and federal taxation level.
Nevada and Wyoming Corporations
Forming corporations in Nevada and Wyoming can be beneficial because of their ability to save corporations on state corporate income taxes. Though this rarely comes into play for corporations who register as foreign entities to do business in another state.
Advantages of an LLC
There are many advantages to forming a business as an LLC. Some benefits of operating as an LLC include:
- Flow-through taxation, which allows you to avoid the double taxation that corporations face and has the profits from the company flow through to the member’s personal tax returns based on their portion of ownership. This usually provides for better tax rates on income.
- An LLC only requires an informational return for filing at the state and federal level.
- Asset protection from liability if the business owes debts.
What Are the Requirements for Doing Business in California?
California is considered one of the highest taxed states in the United States. They have a minimal annual franchise fee of $800 that applies to all entities doing business in California. California has a specific state tax rate for all business entities. You can find what constitutes as doing business in California by looking at the California Franchise Tax Board website. In general, doing business in the state of California is defined as actively engaging in any transaction for the purpose of financial gain which creates a wide interpretation for doing business.
Requirements for Doing Business in Texas
While Texas does not have a state corporate income tax, they do still require payment of a franchise tax. A franchise tax is imposed on corporations and limited liability companies that are chartered to do business in the state of Texas. The tax can also be imposed on non-Texas based companies that engage in business activities in the state.
The Texas Franchise Tax fee is basically a different way to refer to state income tax. Though by terming it this way, the state has the benefit of the enticing new business as it can boast no personal income taxes which is appealing to new business owners.
It is also important to note that if you are doing any type of business in the state of Texas, even a real estate deal, the Texas Franchise Tax will be triggered.
There are two approaches used for taxing businesses in Texas. You can be taxed by the corporation’s stated tax. Taxable capital is based on the annual report filed after the corporation last accounting period of the calendar year and is taxed at a rate of 0.25 percent. Any earned surplus for an annual report will need to be reported the day after the ending date that the previous franchise tax report to the ending date of the corporation’s last fiscal accounting period for the year. This rate is taxed at 4.5 percent.
How Does the Franchise Tax Board Determine if You Are Doing Business in California?
The easiest way that the California Franchise Tax Board can check to see if you are doing business in California is by getting a subpoena for your business credit card to see where transactions on the card took place. For example, if you are registered in the state of Nevada and note registered to do business in California but your transactions are in the state of California, you can be required to pay the franchise tax fee along with any penalties and interest that have accrued. California takes the point of view that most of the expenses for your business should be in the state your business is located.
Does Your Company Have to Register as a Foreign Business to Qualify to Do Business in Another State?
The short answer is no, but you run the risk of doing business in another state that is subject to state taxes without realizing it. If you hire employees in another state, you will be required to register as a foreign entity to be able to pay their payroll taxes.
