Many people are increasingly concerned about becoming the targets of lawsuits and other creditors. We live in a litigious society and there is no greater tragedy than losing everything that one has worked hard over a lifetime to attain due to an aggressive plaintiff's attorney and a persuaded jury. It seems that there are no limits as to why someone is sued. Recently the Associated Press reported that actress Lindsay Lohan filed a lawsuit against E-Trade claiming that an advertisement featuring babies referring to a "milkaholic" named Lindsay is modeled after her and is damaging her reputation. With endless possible ways to be on the wrong end of a subpoena, proper Asset Protection Planning is generating more interest.
Perhaps the most common form of Asset Protection involves creating entities such as corporations or Limited Liability Companies ("LLC's") to hold business or investment property. If you run a business or own rental property, holding such assets in a corporation or an LLC will provide you with a degree of creditor protection. "Inside creditors" – those individuals who claim they have been harmed by the business or on the rental property – generally will be limited in their recourse to the assets that are held in the corporation or LLC and will not be able to go after your personal assets. If the LLC is structured in a certain way and is governed under an Asset Protection friendly state such as Nevada, "outside creditors" – those individuals who claim they have been harmed personally by the defendant – generally will be limited in their recourse to personal assets and not the business assets.
Protecting personal assets is more difficult. Historically, it was not possible to create an entity in the United States that shielded your own assets from your own creditors. However, years ago foreign jurisdictions such as the Cook Islands allowed so called "Asset Protection Trusts." The idea was to create a trust in a foreign jurisdiction, hire a foreign trustee, and rely upon the foreign jurisdiction's laws to protect your personal assets.
More recently, states such as Nevada and Delaware have amended their laws to allow domestic Asset Protection Trusts. The idea is similar to a foreign Asset Protection Trust but instead of moving title to your assets off-shore, you only need to move title to your assets to another state. This method is generally less expensive and it is less worrisome for most clients to hold title in another state rather than in another country.
Both foreign and domestic Asset Protection trusts are not foolproof but the idea is to make it harder and more expensive for a potential plaintiff to go after your assets. The concept is to put as many obstacles between the potential plaintiff and your assets in order to destroy the economic incentive to litigate.
For more information, I am hosting two seminars on Asset Protection Planning with special guest, nationally-known Asset Protection attorney Jeffrey R. Matsen. Both seminars will be held on Thursday, March 25, 2010. Please call Marilyn Beans at 831-920-0205 to RSVP.