the government. You can read about Family Limited Partnerships (FLP) or Family Limited Liability Companies (FLLC) in the Estate Planning section of the book to learn about one tool that will help you lower your taxable estate.
What Assets Should You Protect?
Most of the time when a client writes down ALL of their assets on a piece of paper, they are surprised at how much they have that needs to be protected. If you own any of the following, you are a good candidate for asset protection:
Family Home or Condominium
Rental Property
Non-Rental Property
IRA
Stocks or Mutual Funds
Life Insurance
Bank Account or CD’s
Planes, Boats, Automobiles, Water-scooters, or Motorcycles
Other business entity (especially S or C-Corp stock)
Any other collectible items that have value
Future Inheritance for Family
For many athletes there are very few things in life that are more important than protecting assets. Most athletes work hard and long hours to reach the level of achievement they have reached and to accumulate wealth; and with one negligence lawsuit, the majority of an athlete’s wealth can be taken from him/her by a creditor.
A good asset protection plan can be implemented for $2,500-$10,000, and to do so would be some of the best-spent money a client can spend. Asset protection protects the client’s family wealth and can give the client peace of mind when living what is an otherwise, stressful and hectic life.
I suggest that if you take nothing else from this chapter, you seriously consider whether you are currently asset protected; and if you are not, I hope you take action to protect your assets as soon as possible.
Asset Protection Planning
Asset protection, in general, is about putting up barriers in front of creditors to make it difficult or impossible for them to get your personal and business assets. Asset protection is NOT about hiding or concealing assets or about committing fraud to conceal assets from creditors. Good asset protection discourages lawsuits to the point where a client can bluntly state to a personal injury attorney that he/she has millions of dollars in legally “protected” assets; and, if sued, the attorney will not be able to reach any of those assets.
Legal Asset Protection
Correctly set up, asset protection plans are ones that use existing laws and are 100% legal in the eyes of the U.S. Government (and foreign governments if offshore planning is needed). It might sound obvious to the reader that an asset protection plan needs to be legal, but as you will find if you search the country for information on asset protection planning, some of the solutions are what we would call a bit edgy, or based not in law but in the absence of law.
Unlike a lot of issues dealt with in estate planning, investment planning, and income tax reduction planning, proper asset protection is a fairly black-and-white legal issue. There are certain ways to put an asset protection plan together, and when an advisor is recommending something you cannot look up (or your local attorney cannot look up), chances are there is something not on the up-and-up with the recommended plan.
Reasonable minds might differ when it comes to determining what the best asset protection plan is; but reasonable minds of asset protection attorneys should not differ when it comes to determining if the asset protection plan options are, in fact, legal.
Keys to Asset Protection Planning
Do not wait. Due to the busy professional and personal lives of most clients, it is not easy to find several hours to sit down with a qualified attorney to put together an asset protection plan. If, after reading this section of the book, you believe you need help with an asset protection plan, have your assistant, agent, or trusted family member chalk off an hour on your calendar so you can focus, and call someone who can help you get the ball rolling with your asset protection plan.
Keep an open mind. The best asset protection plan for any client completely removes all the assets from the name of the client. The worst asset protection plan has all assets held individually by the client. A good asset protection plan is somewhere in between, and you need to work with your asset protection attorney to find a happy medium between the two.
Do not wait. Really. This is short list but “do not wait” is so vitally important that I put it in here twice. If, when reading this book, you know you need help, don’t wait. Implementing a plan after you know of a potential lawsuit will do you little good to protect against that impending claim. Hindsight is 20-20; and you do not want to look in the mirror after procrastinating for months only to say to yourself, “I told you so.” There is little consolation for knowing you should have done something, and because you didn’t, it put millions of dollars-worth of your family assets at risk.
Existing Laws Help Protect Your Assets
Homestead Exemption. They say a man’s home is his castle, but is that really true? Most states provide some sort of creditor exemption for a personal residence. Each state has different rules and limits for what that exemption is, and you should check with your local advisor, or call one of the authors, to determine just how much the homestead exemption is in your state.
The homestead exemption came from public policy concerns to protect the family. The theory is fairly simple⎯the legislators wanted to protect some portion (in some states it is unlimited) of the family residence so families (even those riddled with debt and hounded by creditors) have a safe haven.
Interest protected. The homestead exemption is a statutory right to protect “homestead property.” This is typically the real estate owned by a person as his/her personal residence. Again, each state varies on their definition so be sure to check with your local advisor to make sure the piece of property you are concerned about is covered.
Homestead exemption value. The amount of homestead exemption in each state varies widely. States such as Rhode Island, Delaware, New Jersey, Pennsylvania, and the District of Columbia have no homestead exemptions. Texas and Florida, and a few others, have unlimited homestead exemptions; however have some limits under the new bankruptcy laws.
Some states have a different amount for married couples, some vary the amount by the number of dependent children an individual or couple has; some states raise the exemption if someone incurs significant hospital or medical debts, and some increase the exemption in the case of bankruptcy.
We would say a general number for states that do not have an unlimited exemption, and those that have no exemption, is between $5,000 and $50,000 (depending on if you are married or single).
Debt exclusions. Certain debts in all states are excluded from being covered by the homestead exemption. Almost all states exempt out consensual liens, mechanic liens, and property taxes from being covered by the homestead exemption. Many states are now adding to the list of exemptions debts for child support or spousal support. The IRS is also a creditor that does not fall under the homestead exemption.
