Asset protection is a hot topic these days. Most advisors will tell you that incorporating or setting up an LLC will protect you from personal liability if your corporate entity is sued. However, there are many other less well known, but sometimes even more effective asset protection tricks you can use to protect your finances. An experienced estate planning attorney can help you achieve many of the same goals and protections that the wealthy enjoy.
Here are 6 asset protection tricks you can use that the IRS and creditors wish you would not use:
- Set up retirement accounts and fund them to their fullest extent each year. Creditors are not allowed to seize assets in these accounts.
- Start your own business and properly structure it as an LLC. An LLC is less expensive than a normal corporation and it does protect your personal assets in a lawsuit against your business, though you still have to follow corporate formalities. It is possible that a charging order issued by a court could jeopardize dividends paid to you as the debtor corporate member, but you can circumvent it if your LLC was formed in a business-friendly state and the LLC operating agreement was drafted with this in mind. As a result, your corporate manager need not liquidate any corporate assets to pay off the creditor. In fact, the creditor will have to pay taxes on the owed debt as an accounts receivable, a consequence many creditors may choose to avoid.
- Create several LLCs if you have multiple real properties and other valuable interests so that they are separate from each other. If you are sued and the lawsuit pertains to one of the LLCs, only the assets in the LLC that was sued are directly exposed to a judgment.
- Put your assets into asset protection trusts. These can be immune from creditor lawsuits. While the trust owns the assets, some states (or foreign jurisdictions) allow you to retain total control over them.
- Purchase umbrella insurance. This is necessary if you have substantial assets and are sued by an injured tenant in one of your properties or by a car accident victim. If your homeowner’s or auto policy is limited to a certain amount such as $100,000 and the value of the injured plaintiff’s claim is considerably more, an umbrella policy of $1 million or more will protect your personal assets. Umbrella policies are surprisingly inexpensive and can potentially save you hundreds of thousands of dollars or more.
- Consider off-shore entities. Everyone has heard of putting your funds into a Cayman Islands account. But that’s not your only option. By setting up a foreign entity or several of them, you are diversifying currencies, allowing you to move them from one to another.
These asset protection tricks can be valuable to you and save you significant amounts of money if done correctly. Call Denver estate planning attorney Dan McKenzie to see how your assets can be protected with any number of estate planning strategies.