RPF0647-Asset_Protection_Planning_for_Mere_Mortals_-_Part_12_-_Intelligent_Asset

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00:00:14.280 | - Welcome to Radical Personal Finance,

00:00:16.920 | a show dedicated to providing you with the knowledge,

00:00:18.600 | skills, insight, and encouragement you need

00:00:20.720 | to live a rich and meaningful life now

00:00:23.080 | while building a plan for financial freedom

00:00:24.680 | in 10 years or less.

00:00:26.320 | Today we pick up our asset protection planning

00:00:28.920 | from Mere Mortals series.

00:00:30.600 | This is part 12 of the series titled,

00:00:33.160 | called Intelligent Asset Titling.

00:00:39.080 | That's today's show, Intelligent Asset Titling.

00:00:42.200 | Quick bit of refresher, this series is focused

00:00:46.080 | on helping ordinary people to put in place

00:00:49.440 | basic asset protection plans.

00:00:51.720 | And I have focused heavily on knowledge

00:00:55.120 | and I've focused heavily on things that you can do

00:00:57.680 | without necessarily consulting a financial professional,

00:01:01.040 | consulting a legal professional.

00:01:03.160 | All along the way in this series,

00:01:05.160 | I've tried to explain to you how certain things work

00:01:08.000 | and what things are available to you.

00:01:10.320 | And most of what we've talked about

00:01:11.880 | is just simply a matter of your knowledge

00:01:13.960 | and adjusting your affairs to line up with your knowledge.

00:01:17.640 | I haven't talked about the things that are more complex

00:01:19.960 | or the things where you need specific advice.

00:01:23.080 | Now we're getting to the end of this particular series

00:01:25.040 | because we're starting to cross that barrier

00:01:27.800 | between things that are easy for a do-it-yourselfer to do

00:01:31.840 | versus things where you'll start to want

00:01:33.960 | to solicit professional financial advice,

00:01:36.740 | professional legal advice from an attorney

00:01:39.520 | who specializes in asset protection planning.

00:01:42.600 | This show is very much on the borderline,

00:01:45.360 | but I'm still gonna take a crack at it

00:01:46.980 | because I at least want you to get some basic concepts.

00:01:50.120 | And then some of my listeners who are more confident

00:01:53.720 | in their DIY skills will be able to go ahead

00:01:57.000 | and put some strategies in place.

00:01:58.680 | And some of my listeners will go ahead

00:02:00.480 | and start to choose to consult with legal professionals.

00:02:03.480 | But this is where we're gonna start to cross that border,

00:02:05.920 | which is why this particular series is coming to an end.

00:02:08.960 | This show is also where some of these strategies

00:02:13.520 | become more complex.

00:02:15.340 | And individualized situations

00:02:17.780 | will make a much bigger difference.

00:02:19.640 | So just be aware of that.

00:02:21.160 | I'm gonna speak fairly broadly in this show.

00:02:23.840 | It'll still be useful.

00:02:25.000 | I'm not running from details,

00:02:26.640 | but there are so many little details

00:02:28.700 | that will come into play that we just gotta,

00:02:30.200 | we gotta be careful of that.

00:02:31.560 | So first, be aware of the fact

00:02:35.000 | that it is probably not possible for you or me

00:02:39.600 | to create and actually maintain

00:02:43.160 | a perfect asset protection plan.

00:02:46.560 | Now, we might be able to design one.

00:02:49.800 | We might be able to put in place

00:02:51.600 | so many barriers and lines of defense

00:02:54.720 | that it is in effect the perfect plan.

00:02:57.760 | But we may not be able to afford it

00:03:00.360 | to actually pay all the necessary fees,

00:03:02.940 | whether it's annual fees for entity maintenance,

00:03:05.920 | whether it's legal fees for entity creation,

00:03:08.880 | whether it's tax fees for tax compliance.

00:03:11.240 | And we may simply not be able to keep on top

00:03:13.680 | of the administrative complexity.

00:03:16.280 | Many a good asset protection plan has failed

00:03:19.600 | because the person who established it didn't maintain it.

00:03:23.320 | For example, if you own a corporation,

00:03:26.800 | are you actually maintaining your corporation?

00:03:29.920 | Are you actually doing your annual meetings?

00:03:32.120 | Are you keeping your minutes?

00:03:33.760 | Are you keeping your corporate records properly

00:03:36.640 | so that they'll stand up in the court of law?

00:03:38.600 | And the same thing applies to you

00:03:39.900 | even if you are maintaining a simpler entity

00:03:42.600 | or a series of entities such as an LLC

00:03:45.360 | or a series of LLCs.

00:03:47.080 | LLCs have fewer administrative burdens.

00:03:49.600 | That's one of the reasons why they're so popular.

00:03:51.720 | But in order to maintain the protection

00:03:55.400 | that an LLC can offer,

00:03:56.740 | you still need to be treating it very carefully

00:03:59.640 | and maintaining it very carefully.

00:04:01.600 | That can become very burdensome after a while.

00:04:04.240 | And so there's always a balance here

00:04:06.160 | between what is ultimately ideal

00:04:10.160 | and what can actually be maintained.

00:04:13.040 | Be aware of that.

00:04:14.040 | I'm gonna talk about some concepts

00:04:15.440 | and you might go as my brain usually would

00:04:17.480 | to oh, I'll go to this extreme.

00:04:19.340 | I'll tell you, I've been there, done that.

00:04:20.920 | And sometimes you just can't maintain the ultimate plan.

00:04:24.280 | So if you don't have an actual need for it,

00:04:26.480 | go slow, take it easy, little by little.

00:04:29.320 | The expense and complexity of a really fantastic plan

00:04:34.000 | might ultimately lead to it failing,

00:04:36.240 | in which case the simpler plan

00:04:37.620 | might have been a superior choice.

00:04:39.900 | The other thing you should be aware of is

00:04:42.360 | as we go through this show,

00:04:43.520 | some things will work for asset protection,

00:04:46.760 | although they might not ultimately protect you in court.

00:04:49.880 | Remember we talked about the different stages

00:04:52.060 | of asset protection.

00:04:53.400 | Much earlier in this series,

00:04:54.560 | we spoke extensively on the subject of financial privacy.

00:04:58.560 | And we talked about how if you have a lower profile

00:05:02.080 | because your assets are fairly private,

00:05:04.960 | that may help to protect you

00:05:06.840 | from simply not being seen

00:05:08.520 | as a potential deep pocket defendant.

00:05:11.400 | If you have a big footprint,

00:05:14.160 | you will be targeted more because of your deep pockets.

00:05:17.880 | There will be many potential people and attorneys

00:05:21.460 | looking for a deep pocket defendant.

00:05:23.520 | But if you are not perceived to have deep pockets,

00:05:26.640 | that can protect you.

00:05:27.900 | But that doesn't necessarily mean

00:05:29.400 | that you can keep all of your assets totally secret.

00:05:33.160 | If you wind up having to submit to a debtor's examination

00:05:37.760 | to satisfy a judgment creditor,

00:05:40.120 | you're going to have to disclose your assets.

00:05:42.320 | So when we talk about something simple,

00:05:44.960 | for example, let's say that you have an asset

00:05:46.600 | that you own personally,

00:05:47.520 | but you just simply place it into a trust or an LLC.

00:05:51.360 | That can provide some significant asset protection,

00:05:54.600 | although it's not the ironclad legal protection

00:05:57.580 | that means your creditors

00:05:58.440 | could never get their hands on it.

00:06:00.360 | So some of these different things we're gonna talk about

00:06:03.060 | will provide de facto asset protection,

00:06:05.840 | which is real asset protection

00:06:07.720 | because it actually does, it makes you a lower profile.

00:06:11.560 | Somebody is not necessarily aware of everything you own,

00:06:13.960 | but it doesn't mean that ultimately

00:06:15.320 | it couldn't be undone in a court of law.

00:06:17.240 | Whereas some of these strategies do have the legal strength

00:06:20.920 | so that they would stand up.

00:06:22.120 | And even if you had to disclose your ownership

00:06:24.040 | of a certain asset, that ownership can still be protected.

00:06:27.840 | Now, if you're aware of those things, we can dig in.

00:06:31.840 | A couple of basic concepts for you to consider

00:06:34.160 | when it comes to asset protection,

00:06:36.360 | specifically with regard to asset titling.

00:06:38.880 | Remember that ownership of an asset

00:06:41.360 | is not necessarily synonymous with the use of an asset.

00:06:46.360 | And I'm from Florida, and one of the jokes

00:06:48.920 | that most Floridians would say,

00:06:52.680 | or would at least be aware of,

00:06:53.880 | and we've heard it dozens of times,

00:06:55.720 | is it's a lot better to have a friend with a boat

00:06:58.200 | than it is to actually own a boat.

00:07:00.980 | And it's a joke because it's true.

00:07:03.200 | Everyone knows that there are those famous jokes

00:07:05.880 | about boats, which I've heard and said so many times,

00:07:08.120 | I'm not gonna repeat them.

00:07:09.120 | And so many people say, I don't wanna own a boat,

00:07:11.560 | I just wanna be able to use a boat.

00:07:13.920 | So if you've got a friend with a boat,

00:07:15.560 | most people who have boats don't really use them.

00:07:17.640 | If you've got a good friend who doesn't mind

00:07:19.400 | your taking and using their boat,

00:07:22.360 | then in many ways, you've got the best of both worlds.

00:07:24.780 | The ownership of the boat may or may not

00:07:27.440 | be actually what you want.

00:07:28.880 | You may just want the use of the boat.

00:07:30.720 | And there are many ways for you to be able to use a boat.

00:07:35.060 | You can use a friend's boat.

00:07:37.000 | You can use a boat club membership

00:07:39.480 | and use the membership's boats.

00:07:41.760 | Or you can use a boat that is owned by some entity

00:07:45.480 | in which you have an interest.

00:07:47.600 | So if you always remember that ownership

00:07:50.080 | is not necessarily the synonymous with use,

00:07:52.600 | you'll start to see how intelligent asset titling

00:07:55.620 | can be used.

00:07:57.000 | Most of us would like to be able to use assets

00:08:01.680 | or get some certain beneficial interest from the asset,

00:08:04.880 | but that doesn't necessarily mean that we,

00:08:07.380 | individually, in our own names,

00:08:09.560 | have to be the one who actually owns the asset.

00:08:14.020 | I'm gonna stick with simple examples,

00:08:16.280 | but another simple example would be something

00:08:18.020 | like a company car.

00:08:19.920 | If you're issued a company car by your company,

00:08:23.180 | you get to use that car under the terms

00:08:25.400 | agreed on with your company.

00:08:27.040 | Sometimes those terms are simply designated

00:08:29.740 | by your company that you can use it to go

00:08:31.320 | from your house to your office,

00:08:34.400 | or simply while you're on sales calls,

00:08:36.480 | or things like that.

00:08:37.640 | Sometimes the use of the company car

00:08:39.160 | is fairly liberal and fairly broad.

00:08:41.120 | Now here, there's a big difference between tax planning,

00:08:43.480 | which is where you have to account for use of the car

00:08:46.160 | under the benefits program for personal use

00:08:48.720 | versus on-the-job use,

00:08:49.720 | which is often why things are restricted.

00:08:52.040 | There's a big difference between tax planning

00:08:53.720 | and asset protection planning.

00:08:55.960 | Your company can own a car and you can use the car.

00:09:00.960 | And you, when someone's looking for your assets,

00:09:05.800 | you're not listed as an owner of the car.

00:09:08.200 | Now if you work for a company that's a publicly traded

00:09:10.600 | company with millions of stockholders,

00:09:12.920 | well certainly, you don't own the car.

00:09:15.080 | But you still don't own the car,

00:09:16.800 | even if you work for a company

00:09:18.600 | that has one single stockholder, you.

00:09:21.900 | You still don't own the car.

00:09:23.480 | The company owns the car,

00:09:25.340 | and you have an agreement with the company

00:09:27.360 | as part of your overall benefits package

00:09:29.420 | for you to drive the car

00:09:31.280 | under the terms agreed on with your company.

00:09:33.560 | Again, I'm gonna ignore the tax consequences,

00:09:35.720 | 'cause usually that's where we get into,

00:09:36.880 | well, how can I do this very tax efficiently?

00:09:38.280 | In this case, we're just talking about asset protection.

00:09:40.520 | You don't own the car anymore.

00:09:41.800 | Your company owns the car.

00:09:44.040 | But you can use the car.

00:09:45.800 | You can park the car in your driveway.

00:09:48.220 | You can take the car to the grocery store.

00:09:50.660 | You can take the car to work.

00:09:51.680 | You can put your kids in the car,

00:09:52.760 | take them to soccer practice.

00:09:54.120 | You can use the car if it's agreed on

00:09:56.760 | in the agreement you have with your company.

00:10:00.180 | Now, that's not to say you don't own any asset.

00:10:02.480 | What you own is shares of stock.

00:10:04.500 | You own shares of a company,

00:10:06.740 | and the shares of, the value of those shares

00:10:09.300 | of your company is going to include

00:10:11.420 | the book value of your car.

00:10:13.300 | So it's not as though you don't own an asset.

00:10:15.140 | In that case, you own the shares of the company,

00:10:17.500 | but you don't own the car.

00:10:19.520 | I don't know of a simpler example I could use

00:10:22.580 | to try to show you that ownership

00:10:24.760 | is not necessarily synonymous with use.

00:10:27.340 | Now, as you start to look at your assets,

00:10:29.220 | and you start to look at things

00:10:30.340 | that you'd like to enjoy in your life,

00:10:31.860 | what you'll see is there are ways

00:10:34.420 | that you can structure almost anything you want to do

00:10:37.640 | so that you don't actually own the asset,

00:10:40.240 | but rather someone else or some other entity owns the asset.

00:10:44.620 | That's basically what we do with asset titling.

00:10:48.340 | We think about what's the best way

00:10:50.500 | for us to title this asset.

00:10:53.360 | So think about that.

00:10:54.180 | Ownership is not synonymous with use.

00:10:56.260 | Next, when you're engaging in things

00:10:58.660 | that are risky in your life,

00:11:00.660 | it's important that you compartmentalize the risk,

00:11:03.820 | that you try to segregate the risk as best you can.

00:11:06.780 | And that's where asset titling and entities

00:11:09.980 | are going to come into play.

00:11:11.700 | If you have, if you're exposed to risk,

00:11:14.060 | everybody is exposed to a certain amount of risk.

00:11:16.060 | If you're driving down the road,

00:11:17.660 | you're gonna be exposed to a certain amount of risk.

00:11:20.620 | If you walk out of your house, if you do anything,

00:11:22.860 | you're gonna be exposed to certain amounts of risk.

00:11:24.980 | But then there are some activities in life

00:11:26.580 | that are going to expose you to more risk.

00:11:28.940 | And so one of the things that you wanna do

00:11:30.540 | with intelligent asset titling

00:11:31.980 | is you want to compartmentalize the risk as much as you can.

00:11:36.420 | The obvious way to do this here is to use,

00:11:40.100 | in the Western tradition, is to use business entities.

00:11:43.500 | There is a long and robust history

00:11:47.140 | of court precedent and laws that protect

00:11:50.800 | the ability of companies to limit the risk.

00:11:55.340 | If you're concerned about whether this is okay,

00:11:57.500 | whether this is moral, et cetera,

00:11:59.420 | there are philosophical discussions on it.

00:12:01.960 | I'm not gonna spend any time on that discussion here.

00:12:04.300 | It is, this is what occurs.

00:12:07.820 | And at least in the Western context,

00:12:10.380 | there is a very high degree of respect

00:12:13.180 | for the limited risk, the protection from risk,

00:12:17.460 | the limited liability of companies

00:12:21.480 | if the rules are properly followed,

00:12:23.840 | if the company is properly maintained.

00:12:26.520 | And these entities exist in virtually all Western societies

00:12:30.580 | and probably in almost any place in the world,

00:12:33.420 | but I'd be nervous about making blanket statements

00:12:36.220 | at places I haven't researched.

00:12:37.680 | And so you wanna use these types of companies

00:12:39.420 | to compartmentalize the risk and limit the risk to you.

00:12:44.040 | With regard to asset titling,

00:12:46.700 | the other thing that you can do is you can make sure

00:12:49.840 | that you split assets into ownership structures

00:12:53.000 | that don't have risk.

00:12:55.040 | So you can use business entities to compartmentalize risk

00:12:59.080 | and you can split assets out of those entities

00:13:01.520 | into other entities that don't have risk.

00:13:04.320 | Give you just a very simple example.

00:13:06.880 | Let's pretend that I were running

00:13:09.360 | a road construction company.

00:13:12.840 | And so as part of this road construction company

00:13:15.520 | or perhaps as part of a,

00:13:17.520 | we do road construction, we do site development,

00:13:21.900 | things like that.

00:13:22.940 | And so as part of this road construction company

00:13:25.980 | and the site development company,

00:13:27.660 | my company has the need for very big tractors,

00:13:31.640 | tools, bulldozers, trucks,

00:13:33.620 | all these big expensive machines.

00:13:37.060 | These things are crazy expensive,

00:13:39.220 | which means that they're an extremely valuable asset.

00:13:42.460 | But the use of these machines

00:13:43.920 | also involves a significant amount of risk.

00:13:47.220 | There's a major amount of risk of property damage.

00:13:50.540 | If I back my massive bulldozer into somebody's property,

00:13:55.540 | I could punch a hole in the wall of their house,

00:13:58.940 | I could run over their car, something could happen.

00:14:01.420 | And there's also just a general risk

00:14:04.900 | if I mess something up badly

00:14:06.820 | and I'm subject to a claim on the company.

00:14:08.980 | I face a lot of risk

00:14:10.140 | with this kind of big, heavy construction equipment.

00:14:12.940 | I have a lot of guys

00:14:14.220 | who are gonna be around this equipment

00:14:15.820 | and one of those guys might get their leg run over.

00:14:18.380 | Our equipment is dangerous.

00:14:23.080 | So it's valuable, but it's dangerous.

00:14:26.340 | So I come to this problem

00:14:27.980 | and there are different ways to look at it.

00:14:29.660 | So the first thing that I would probably look at

00:14:31.980 | is as a prudent business owner,

00:14:33.900 | I would say I need to protect myself

00:14:36.420 | from the risk of my business.

00:14:39.460 | Because if one of my guys runs over somebody

00:14:42.300 | and kills somebody,

00:14:43.620 | I wanna make sure that my personal assets

00:14:46.620 | are not available to the potential creditors.

00:14:49.700 | After all, if I've spent years working up,

00:14:52.340 | building up assets, I've got money,

00:14:55.440 | I've got investment assets, I've got real estate,

00:14:58.060 | I gotta make sure that's not exposed

00:15:00.220 | to the claims of creditors.

00:15:01.140 | So the obvious solution is I start a company.

00:15:03.740 | I start the Joshua Sheets Land Company.

00:15:08.060 | And this is a limited risk entity.

00:15:12.300 | It's either a corporation or a limited liability company

00:15:15.300 | and I've established it as a company.

00:15:16.820 | Now, what does that do for me?

00:15:18.060 | First thing it does is it limits the ability

00:15:21.420 | of a creditor for the company

00:15:24.180 | to come at my personal assets.

00:15:26.780 | Now, the company itself has to stand good

00:15:29.620 | for what the company owns, what the company owes.

00:15:33.940 | So if I have $500,000 of equipment

00:15:37.640 | in the company and one of my guys kills somebody

00:15:40.300 | and we have a $500,000 lawsuit,

00:15:42.500 | well, our creditor, in that case,

00:15:44.540 | the person who won the lawsuit against us,

00:15:46.540 | our creditor can force us to sell the equipment

00:15:50.500 | and satisfy the debt.

00:15:51.940 | They can force us to disgorge the money from the company

00:15:55.060 | and pay off the debt.

00:15:56.660 | So the company has to stand good for the risks.

00:16:01.380 | But if I take this one step further

00:16:03.280 | and I think about segmenting out the ownership of the assets

00:16:08.220 | into an ownership structure that doesn't have risk,

00:16:11.620 | then what would probably be a better move

00:16:14.540 | is instead of establishing one company,

00:16:16.700 | to go ahead and establish two.

00:16:18.740 | And what we do is company A is the operations company.

00:16:22.900 | The operations company is the company

00:16:25.140 | that hires the employees.

00:16:26.900 | It's the company that does the contracts,

00:16:30.540 | makes contracts with people to do work.

00:16:32.780 | It's the company that has the public face

00:16:35.080 | of all of the Joshua Sheets land clearing company.

00:16:39.320 | That's the company that does the work.

00:16:41.300 | Now that company ideally should very have minimal assets.

00:16:45.480 | It must have enough money to have operating capital.

00:16:47.820 | We have to make sure it was properly funded.

00:16:50.240 | That would be very important

00:16:51.160 | for maintaining our corporate veil.

00:16:52.880 | So we gotta make sure it's properly funded,

00:16:54.280 | it does have some money in it and it's properly run,

00:16:58.440 | but ultimately it doesn't need to have everything in it.

00:17:01.120 | Now the second thing that we would do

00:17:02.420 | is we would establish a second company

00:17:04.200 | that would be a holding company for the heavy equipment.

00:17:09.120 | And so this might be Joshua's

00:17:11.720 | heavy equipment renting company.

00:17:13.920 | And so that's the company that will own

00:17:16.600 | all of the heavy equipment.

00:17:18.520 | And then that company will establish a lease agreement

00:17:22.300 | with Joshua Sheets land clearing company,

00:17:25.880 | and it will lease the equipment

00:17:28.440 | to the land clearing company.

00:17:29.880 | Well, what does this do?

00:17:31.220 | This splits the asset ownership out

00:17:34.660 | and it compartmentalizes the risk.

00:17:37.040 | The asset holding company will have almost no risk.

00:17:42.080 | First, it will have no employees.

00:17:44.000 | So the asset holding company will not be subject

00:17:46.640 | to liability for the actions of any employees.

00:17:50.040 | It won't be subject to any employee gets drunk

00:17:55.040 | and does something stupid while they're driving a bulldozer.

00:17:57.540 | Well, there is no employee to do that.

00:17:59.260 | It won't be subject to a sexual harassment lawsuit.

00:18:02.020 | Doesn't have any employees.

00:18:03.500 | So there's no risk from employees.

00:18:05.940 | And we can cut off, it makes no contracts

00:18:09.680 | with customers other than the operations company.

00:18:12.980 | So we're not worried then about it going

00:18:15.180 | and breaking a contract.

00:18:16.280 | We're not worried about this company

00:18:17.980 | damaging somebody's property, something like that.

00:18:21.420 | It just holds assets.

00:18:23.760 | So there's almost no risk,

00:18:25.880 | but it's an extremely valuable company

00:18:28.080 | because it has massive amounts of assets in it.

00:18:31.160 | So if you have a lot of assets,

00:18:32.580 | you wanna make sure that they're held within an entity

00:18:35.520 | that doesn't have a lot of risk.

00:18:38.520 | If you're gonna have an entity that has a lot of risk,

00:18:41.200 | you wanna do your best to make sure

00:18:42.520 | that that entity has modest assets within it.

00:18:46.360 | You don't wanna expose everything to it.

00:18:49.300 | So you can split the assets out and move them

00:18:52.240 | and then just simply put in place legal structures.

00:18:54.660 | And this is what almost any big company does.

00:18:57.660 | If you go and you see a Walmart truck

00:18:59.980 | driving down the highway

00:19:01.680 | that's delivering food to Walmart stores,

00:19:04.980 | that truck is not owned by the big Walmart corporation.

00:19:09.980 | It's owned by a subsidiary of the big Walmart corporation.

00:19:14.560 | It's a separate entity.

00:19:15.900 | So big companies do this kind of thing all the time.

00:19:18.220 | You can too.

00:19:19.400 | There's nothing special that Walmart has access to

00:19:23.440 | that you don't.

00:19:24.980 | You have the same laws that govern your life

00:19:27.600 | as Walmart corporation does.

00:19:29.760 | They just simply have the money to pay people

00:19:33.520 | to establish the plans and to maintain the structures.

00:19:37.560 | Back to that thing I said,

00:19:38.520 | the cost of compliance with expenses

00:19:41.720 | and then complexity of maintaining things.

00:19:44.300 | Because if you just simply run everything together,

00:19:47.540 | if you don't actually maintain the assets separately,

00:19:50.280 | if you don't actually maintain the companies separately,

00:19:53.040 | then it falls apart.

00:19:55.160 | Because I guarantee you,

00:19:57.400 | both corporations are gonna be named in the lawsuit.

00:19:59.840 | And so that's where you wanna get good legal advice.

00:20:02.380 | You would ideally have different owners

00:20:04.880 | in both of those companies, a different set of owners.

00:20:07.560 | You wouldn't just wanna make it Joshua owns

00:20:09.560 | both of those together

00:20:10.840 | 'cause then you basically lose your asset protection.

00:20:12.580 | You want a different set of owners for the holding company

00:20:14.800 | than for the operations company.

00:20:17.960 | But you can move assets into various kinds of structures.

00:20:21.640 | And this will also help you again

00:20:23.440 | with regard to privacy.

00:20:25.280 | Entities and structures are one of your keys for privacy.

00:20:28.960 | So let's first talk with some of the simple assets.

00:20:32.360 | And let's keep things very simple first.

00:20:34.400 | Who owns an asset?

00:20:36.900 | Is it you?

00:20:38.680 | Are you the right person to own the asset?

00:20:41.120 | If you're gonna go and buy a boat,

00:20:42.720 | should you own the boat?

00:20:45.300 | Should someone else own the boat?

00:20:50.400 | One of the most valuable strategies

00:20:52.340 | is to think about a person who has relatively low risk.

00:20:57.040 | For example, if you are married,

00:20:59.360 | one of you will probably have a higher risk than the other.

00:21:04.360 | If one person in a marriage relationship is a doctor,

00:21:10.180 | that doctor will be exposed to the risk

00:21:13.240 | of medical malpractices, every doctor knows.

00:21:16.260 | But if the other spouse is not a doctor,

00:21:18.840 | they'll have lower risk.

00:21:20.600 | If one spouse is highly public or very active in something,

00:21:25.300 | and the other spouse is more private,

00:21:27.800 | well, consider which spouse should own the boat.

00:21:31.360 | Generally, if you're gonna own certain assets,

00:21:34.140 | you wanna think about making sure that a person

00:21:37.380 | with the lowest amount of risk owns the asset.

00:21:40.380 | This isn't a bad strategy,

00:21:43.480 | and it's not a bad strategy to start with.

00:21:45.520 | But as with most of these strategies,

00:21:46.840 | we can talk about some potential problems.

00:21:49.280 | It's not a perfect strategy.

00:21:51.360 | It's good for you to consider,

00:21:52.560 | but it's not a perfect strategy.

00:21:54.160 | There are a couple problems that come in

00:21:56.000 | with just simply titling assets in the name

00:21:58.600 | of a spouse that has lower risk,

00:22:02.080 | that has less vulnerability.

00:22:04.520 | The first thing would be what state do you live in,

00:22:07.600 | and what are the laws that govern

00:22:09.640 | marital property in that state?

00:22:11.920 | It makes a big difference whether you live

00:22:13.700 | in a community property state

00:22:15.560 | versus a non-community property state.

00:22:18.080 | In the United States,

00:22:19.720 | there are 10 community property states.

00:22:21.640 | They are Alaska, Arizona, California,

00:22:25.480 | Idaho, Louisiana, Nevada, New Mexico,

00:22:29.560 | Texas, Washington, and Wisconsin.

00:22:33.440 | In a community state, all marital property

00:22:37.800 | is automatically deemed to be owned half by each spouse,

00:22:42.800 | even if only one spouse is listed on the deed.

00:22:45.840 | So if you live in a community property state,

00:22:48.220 | such as, most importantly for a huge number

00:22:50.980 | of my listeners, California,

00:22:53.040 | if you buy the boat or if you buy the house

00:22:55.560 | and you title it into the name of the lower-risk spouse,

00:23:00.560 | that won't automatically protect you

00:23:04.460 | because you're automatically understood

00:23:07.800 | to own 50% of the property,

00:23:09.820 | even though it's just simply titled

00:23:11.620 | in the name of the spouse.

00:23:13.200 | That's a real problem.

00:23:14.600 | Now, it is possible to establish

00:23:18.240 | a transmutation agreement,

00:23:19.880 | which is a post-nuptial agreement

00:23:22.600 | that indicates that you are keeping a certain asset

00:23:26.480 | outside of the community estate.

00:23:28.860 | Even in a community state,

00:23:31.580 | just because somebody owns something

00:23:33.180 | doesn't mean it automatically becomes community property.

00:23:35.420 | For example, if you own a house prior to becoming married,

00:23:40.420 | you don't lose the ownership of that house

00:23:44.020 | to community property.

00:23:45.740 | But if you buy a house after becoming married,

00:23:47.820 | then it's automatically considered

00:23:49.180 | to be community property.

00:23:51.060 | So you could establish a transmutation agreement

00:23:54.860 | and have a post-nuptial agreement in place

00:23:57.480 | that would designate a certain asset

00:23:59.940 | to be still owned by one single spouse,

00:24:03.680 | the spouse that has, in your case,

00:24:05.260 | the lower amount of risk.

00:24:07.240 | That can work.

00:24:08.620 | But you should then next see the obvious risk

00:24:11.620 | would be what would then happen in divorce.

00:24:15.060 | One of the most likely forms of asset protection

00:24:19.780 | that most people would wind up needing

00:24:21.460 | would be in a divorce.

00:24:24.060 | If we were to deal with the probability

00:24:27.300 | of your being sued because you were a deep pocket creditor

00:24:30.180 | and losing a lawsuit

00:24:31.620 | versus the probability of your becoming divorced

00:24:34.840 | and losing assets in a divorce agreement,

00:24:37.600 | I don't know the statistics,

00:24:38.780 | but the threat of number two is far higher

00:24:40.660 | than the threat of number one.

00:24:42.340 | So the action that you take

00:24:44.700 | that could protect you from threat number one

00:24:47.140 | could also subject you to much greater risk

00:24:50.620 | for threat number two.

00:24:52.420 | If my wife and I are married

00:24:54.620 | and we title all of our assets into her name

00:24:58.460 | and we clearly establish that as non-community property,

00:25:02.500 | as non-marital property,

00:25:03.800 | we clearly establish it to be separate property,

00:25:06.320 | her separate property,

00:25:07.820 | and then we go to divorce court,

00:25:10.860 | well, she'll have all that property

00:25:12.740 | on the other side of divorce court.

00:25:14.940 | And if she doesn't have it

00:25:17.700 | on the other side of divorce court,

00:25:19.280 | we'd go back to the asset protection plan.

00:25:21.180 | It wouldn't protect us in the asset protection plan

00:25:23.680 | because states are increasingly attacking this idea

00:25:26.260 | and increasingly considering more and more

00:25:28.620 | that all of the assets of both spouses

00:25:32.020 | are considered to be available for creditors.

00:25:34.680 | There is an additional,

00:25:36.200 | there are wrinkles in different states,

00:25:37.900 | but there's a long list of states

00:25:39.980 | that are starting to approve court actions

00:25:43.780 | where just because it's titled in one spouse's name

00:25:47.220 | doesn't mean it's not necessarily available

00:25:49.100 | to the other spouse's creditors.

00:25:50.800 | The other big risk you would face

00:25:53.980 | would be making gifts to a spouse

00:25:57.200 | could very easily run afoul

00:25:59.660 | of the fraudulent transfers legislation

00:26:02.820 | because gifts are very tricky to do them right.

00:26:07.820 | Now, so now if you were do that,

00:26:11.120 | if you make a gift to your spouse

00:26:13.040 | long before any circumstances

00:26:15.080 | leading to a lawsuit actually happen,

00:26:17.480 | then you don't really need to worry

00:26:18.880 | about the fraudulent transfers legislation.

00:26:22.120 | But if you all of a sudden,

00:26:24.800 | you know, you go and wind up accidentally killing somebody,

00:26:28.680 | and then the next day you go and transfer

00:26:31.880 | all of your assets and you establish

00:26:33.620 | a transmutation agreement making sure

00:26:35.520 | that your spouse owns all the assets,

00:26:37.440 | you've got a problem.

00:26:38.360 | That could very easily be ruled as a fraudulent transfer.

00:26:42.400 | You say, well, maybe I could sell the assets to my spouse.

00:26:46.200 | Problem is you have now sold assets to an insider,

00:26:51.200 | and what do you tell the court

00:26:52.780 | as to why you said all of a sudden

00:26:54.800 | the day after you killed somebody

00:26:56.200 | or the month after you killed somebody,

00:26:58.000 | you all of a sudden sold all your assets

00:26:59.960 | to your spouse.

00:27:03.120 | If they can, if the judge can determine

00:27:06.040 | that that sale was to protect assets,

00:27:08.840 | which is in that case probably

00:27:10.360 | the only logical explanation for your actions,

00:27:14.200 | then that in and of itself can be deemed

00:27:17.240 | as evidence of your intent to defraud your creditors.

00:27:20.080 | And so thus at that point in time,

00:27:22.280 | that transfer can be undone.

00:27:24.600 | So the first thing to think about

00:27:26.120 | is who should own something?

00:27:28.220 | Should you own it or should somebody else?

00:27:30.800 | And that most likely somebody else would be your spouse,

00:27:35.520 | especially if your spouse owns lower amounts of risk,

00:27:38.760 | has lower amounts of risk.

00:27:40.240 | Now this could also then add administrative complexity.

00:27:44.160 | For example, over the years

00:27:45.720 | as my wife and I have titled various assets,

00:27:48.720 | we've often found the challenge

00:27:50.280 | of just simply managing the assets.

00:27:52.880 | If both of you are listed as the owners of a certain asset,

00:27:57.180 | then all of a sudden now both of you

00:27:58.720 | have to sign all the papers.

00:28:00.120 | And so something as simple as having a car

00:28:02.480 | that's owned by both of you

00:28:04.000 | now requires two sets of signatures,

00:28:05.520 | requires two people to sit in line for five hours

00:28:07.680 | at the DMV and deal with all the government stuff.

00:28:10.640 | It just, it winds up being complex.

00:28:13.240 | So again, we have the problem here

00:28:15.080 | of administrative complexity

00:28:16.860 | as compared to perfect solution.

00:28:19.780 | Now, there are some perhaps more powerful things to consider

00:28:24.780 | when we come to ownership.

00:28:26.660 | And that would be something like joint ownership.

00:28:30.000 | When we talked just a moment ago

00:28:31.480 | about one spouse or the other owning the asset,

00:28:36.000 | we were talking about one individual owning the asset

00:28:40.240 | and which individual should it be.

00:28:43.160 | And by the way, that individual

00:28:44.560 | certainly doesn't have to be just you and your spouse.

00:28:49.560 | And in fact, at the end of the show,

00:28:52.720 | I'll touch briefly on nominees,

00:28:54.320 | but let's say that your dad is retired

00:28:57.140 | and your dad goes and buys a boat

00:29:00.400 | and just so happens to park it at your house

00:29:03.060 | and allow you to use it whenever you want to.

00:29:06.140 | And you just so happen to have given your dad

00:29:08.980 | a large gift of money a couple years ago

00:29:10.940 | for him to buy a boat.

00:29:12.660 | Well, you face a small risk

00:29:14.660 | of possibly your dad getting sued

00:29:17.500 | and then the boat that he owns

00:29:20.040 | becoming subject to a creditor.

00:29:21.780 | But if your dad is retired,

00:29:22.820 | doesn't have any major exposure,

00:29:24.440 | it's probably not that big of a deal.

00:29:26.560 | And if you don't think that your dad

00:29:27.720 | is just all of a sudden gonna take the boat

00:29:29.320 | and run away in the middle of the night and sell it,

00:29:32.480 | probably the fact that your dad owns the boat,

00:29:34.600 | but you happen to use it whenever you want

00:29:37.160 | is a pretty decent, very simple asset protection plan

00:29:40.280 | for your boat if you have a high profile.

00:29:43.880 | So that would be the strategy of using a nominee.

00:29:46.560 | Nothing illegal about anything I just said,

00:29:49.520 | it's all perfectly above board.

00:29:52.540 | But that's the strategy of using a nominee.

00:29:54.000 | We'll cover that at the end of the show.

00:29:56.280 | So what about other forms of owning an asset together?

00:29:59.440 | What about actually having some sort of co-ownership?

00:30:04.440 | Well, here there are three basic types of co-ownership.

00:30:08.960 | You need to understand what they mean

00:30:11.460 | so that if you ever own an asset with another person

00:30:14.280 | or another entity,

00:30:15.200 | you understand what your rights and protections are.

00:30:18.380 | The first type of co-ownership is called tenancy in common.

00:30:22.800 | Tenancy in common.

00:30:25.160 | Now the way I think of tenancy in common

00:30:27.480 | is it almost works like shares of stock work

00:30:30.240 | in a corporation.

00:30:31.800 | When you hold property as tenants in common

00:30:35.800 | with another person,

00:30:37.400 | each person who owns,

00:30:39.640 | who's a joint owner in that property,

00:30:41.500 | if it's held tenancy in common,

00:30:43.240 | each person holds a distinct

00:30:45.840 | and separate share of the property.

00:30:48.940 | That share could be any portion.

00:30:50.360 | It could be 50/50, it could be 25/75,

00:30:52.880 | doesn't really matter,

00:30:54.080 | but each person holds a separate distinct share.

00:30:57.760 | When the property is sold,

00:30:59.480 | each person receives income

00:31:02.440 | based upon their share of the property.

00:31:06.100 | Now in a tenancy in common relationship,

00:31:09.920 | each person has the right

00:31:11.840 | to transfer their ownership interest

00:31:14.600 | to someone else without the consent

00:31:17.580 | of the other owners.

00:31:21.080 | And so, my dyslexia kicking in.

00:31:23.500 | So like shares of stock,

00:31:26.920 | you can just simply sell them to another person

00:31:30.120 | without asking the other partners

00:31:34.300 | whether or not they will allow you to sell them.

00:31:37.360 | So that's the way that tenancy in common works.

00:31:39.920 | In many cases, tenancy in common

00:31:42.600 | is the default way that you have joint ownership.

00:31:47.320 | It does not include any rights of survivorship.

00:31:50.020 | It doesn't protect the rights of the other person.

00:31:52.900 | Each person could just simply sell

00:31:54.640 | their portion of a property.

00:31:56.680 | So it can be useful.

00:32:00.280 | Let's say that you and I own

00:32:01.720 | a piece of real estate together.

00:32:03.360 | Well, we don't wanna go necessarily,

00:32:04.920 | we've decided we don't wanna go

00:32:05.920 | and establish a corporation or LLC

00:32:08.800 | and issue shares of stock or issue membership units

00:32:12.160 | in order to designate that percentage of ownership.

00:32:15.360 | So we just list ourselves

00:32:16.520 | as tenants in common in the property.

00:32:18.700 | I can go and sell my partial interest

00:32:20.760 | in the property anytime I want.

00:32:22.280 | That can be useful.

00:32:23.480 | You don't have to be beholden to me.

00:32:25.700 | But the problem is it doesn't help anything

00:32:29.320 | with regard to asset protection.

00:32:32.280 | If you and I own a piece of real estate together

00:32:35.680 | and I have a 25% ownership and you have 75% ownership

00:32:40.400 | and I have a judgment creditor,

00:32:41.740 | that judgment creditor can foreclose,

00:32:43.920 | force the sale of the property.

00:32:46.040 | And after the foreclosure sale is held,

00:32:47.960 | you'll receive 75% of the proceeds of the foreclosure sale,

00:32:52.120 | but I'll receive, but my creditors will receive 25%.

00:32:56.740 | So the tenancy in common ownership structure

00:33:01.360 | is not at all helpful with regard to asset protection.

00:33:06.040 | The next form of joint ownership

00:33:08.280 | is called joint tenancy with rights of survivorship.

00:33:11.640 | And in the case of similar to tenancy in common,

00:33:16.640 | in joint ownership, you can have different percentages

00:33:19.280 | of people, but the only trick is

00:33:21.860 | when one of the tenants dies,

00:33:25.160 | the property automatically passes to the other joint owner.

00:33:31.260 | Now, joint tenancy with rights of survivorship

00:33:33.600 | can be extremely useful with regard to estate planning.

00:33:38.200 | It can be a very simple way of making sure

00:33:40.800 | that somebody that you want to receive the property

00:33:45.760 | receives it automatically at your death

00:33:48.580 | without the property passing through a probate court.

00:33:51.960 | So it can be very useful for estate planning.

00:33:54.480 | However, it's not useful for asset protection planning.

00:33:58.800 | Just like we talked about with tenancy in common,

00:34:01.260 | a creditor can attach an asset,

00:34:04.300 | can foreclose on an asset, can partition an asset,

00:34:06.820 | and they can take the ownership of something

00:34:09.960 | that's owned with joint tenancy with rights of survivorship,

00:34:12.340 | just like with tenancy in common,

00:34:14.340 | if you wind up owing a creditor.

00:34:16.460 | And what's worse is for some assets

00:34:19.280 | that are easily divisible, like things like bank accounts

00:34:22.860 | or stock ownership accounts, things like that,

00:34:25.580 | in those cases, the way that joint ownership

00:34:28.800 | with rights of, joint tenancy with rights of survivorship

00:34:31.200 | works, either of the joint tenants

00:34:33.440 | can access all of the account.

00:34:36.360 | So where I frequently see this is,

00:34:38.400 | let's say you have an elderly parent,

00:34:40.360 | and that elderly parent doesn't want to,

00:34:43.720 | they have a checking account and a stock account,

00:34:46.960 | and let's say there's $100,000 in there,

00:34:48.840 | and they don't wish to make that account pass

00:34:51.840 | by probate court, set up a will, deal with all that.

00:34:55.000 | So what they do is they make it joint tenancy

00:34:57.000 | with rights of survivorship with one of their children,

00:35:00.200 | and that child becomes a joint tenant owner of the account.

00:35:03.960 | Now this can be very simple because when the parent dies,

00:35:07.000 | the younger child just simply automatically

00:35:09.920 | has full ownership of the account.

00:35:12.400 | But during the time while both partners are alive,

00:35:14.600 | both partners can use any amount of the money.

00:35:17.900 | The parent can spend all the money,

00:35:19.340 | and the child can spend all of the money.

00:35:21.380 | And so because of this, a creditor

00:35:23.960 | of either of those people can take all of the money.

00:35:28.960 | So if the son is a high target,

00:35:33.400 | that son is subjected to a lawsuit,

00:35:37.960 | winds up with a judgment creditor,

00:35:40.060 | all of the mother's assets that are in that account

00:35:42.760 | can be taken in order to satisfy the debt.

00:35:45.560 | The son can say, "Listen, this is not my money.

00:35:47.640 | "It's my mom's money."

00:35:49.440 | But it doesn't matter.

00:35:51.600 | The way the law works, it is the son's money.

00:35:55.260 | So a safer solution, by the way,

00:35:58.600 | if you're in that situation,

00:36:00.120 | a safer solution would be to title the asset.

00:36:04.240 | The asset could be simply arranged to pass on

00:36:07.120 | through the probate court.

00:36:08.160 | That's not that big of a deal.

00:36:09.920 | But a better solution would be to establish

00:36:12.340 | a living trust, a revocable living trust,

00:36:14.860 | title the assets into the revocable living trust,

00:36:17.600 | make the son the successor beneficiary of the asset,

00:36:21.720 | and then give the son a durable financial power of attorney

00:36:25.440 | so that the son can make any kinds of changes

00:36:28.360 | on the account if the parent winds up

00:36:31.920 | incapacitated in some way.

00:36:33.280 | So that would be a better solution that provides protection.

00:36:37.060 | Now in that situation,

00:36:38.100 | back to the asset protection standpoint of it,

00:36:40.480 | the money that's in the revocable living trust

00:36:42.900 | would still be available to the parent's creditors.

00:36:46.600 | The revocable living trust doesn't protect

00:36:48.480 | from the parent's creditors.

00:36:49.860 | But with regard to the child's creditors,

00:36:52.600 | I guess I used son and mother,

00:36:54.660 | with regard to the son's creditors,

00:36:56.800 | now there is no asset that is exposed to the son's creditors

00:36:59.800 | 'cause the son doesn't own anything.

00:37:01.580 | The son has a durable power of attorney,

00:37:03.760 | which means that he has the ability

00:37:05.740 | to make changes on the account,

00:37:07.740 | but he has to do that as an agent of his mother.

00:37:11.120 | And then at some point in time,

00:37:12.880 | he may become a beneficiary of the trust.

00:37:15.920 | But those are not assets that a creditor can access

00:37:19.040 | because they're not any ownership.

00:37:21.240 | It might be benefits,

00:37:23.960 | it might be a beneficial,

00:37:25.200 | it's not a beneficial interest.

00:37:26.240 | It might be the future potential of ownership,

00:37:29.120 | but it's not actually ownership.

00:37:31.360 | So it's accomplishing the same thing

00:37:33.600 | that joint tenancy with rights of survivorship

00:37:35.440 | was accomplishing,

00:37:36.680 | but it's doing it in a much safer way.

00:37:39.880 | In summary, joint tenancy with rights of survivorship

00:37:44.160 | can be useful in estate protection or estate planning.

00:37:48.240 | It can be useful,

00:37:49.800 | although there's some many cases

00:37:51.320 | where it winds up hurting you,

00:37:53.560 | but it'll go, the property,

00:37:54.840 | if it's owned joint tenancy with rights of survivorship,

00:37:57.440 | it'll go to the joint owner on the person's death.

00:37:59.720 | That's simple.

00:38:01.040 | As long as that's not a problem,

00:38:02.240 | you can use that and it'd be useful,

00:38:03.740 | but it doesn't provide any useful asset protection benefits,

00:38:07.000 | which brings us to the third type of common ownership,

00:38:09.640 | which is called tenancy by the entirety.

00:38:12.720 | Tenancy by the entirety is the type of co-ownership

00:38:17.040 | that can have really meaningful benefits

00:38:20.560 | with regard to asset protection.

00:38:22.760 | Tenancy by the entirety is a type of ownership

00:38:26.160 | that's only available to a husband and wife,

00:38:28.200 | and it must, but what it provides

00:38:30.920 | is it provides an equal,

00:38:33.880 | indivisible interest in the property.

00:38:36.360 | So if my wife and I own a house together,

00:38:38.080 | each of us is considered to have an equal 100% interest

00:38:42.360 | in the property, if it's held as tenancy by the entirety.

00:38:46.720 | And so because each of us has an equal 100% interest

00:38:50.720 | in the property, nothing can be done

00:38:53.080 | without the consent of the other spouse.

00:38:56.160 | So if I own a house and it's owned

00:38:59.100 | in a tenancy by the entirety state,

00:39:01.320 | which is the big limitation of tenancy by the entirety,

00:39:04.280 | it's only allowed in certain states,

00:39:07.260 | but if I own a house, TBE,

00:39:10.140 | then even if I get sued,

00:39:12.480 | and I'm not protected under Homestead Exemption,

00:39:15.300 | even if I get sued and I lose the lawsuit,

00:39:18.160 | because my house has a complete undivided interest

00:39:21.520 | in the house, she can still own the property,

00:39:25.360 | and the property cannot be taken,

00:39:26.920 | it cannot be foreclosed on.

00:39:28.520 | I can't just go over the list of states

00:39:31.920 | that provide tenancy by the entirety protection

00:39:34.020 | because there are a bunch of wrinkles for every state.

00:39:38.040 | Some states simply do not allow tenancy by the entireties.

00:39:42.080 | A few states, for example, California, Connecticut,

00:39:44.840 | Iowa, Maine, Minnesota, Nevada,

00:39:47.120 | New Hampshire, New Mexico, North Dakota,

00:39:49.680 | South Dakota, Washington, West Virginia, and Wisconsin

00:39:52.980 | don't allow tenancy by the entireties.

00:39:56.420 | Now, the remainder of the states either do allow

00:39:59.840 | or allow tenancy by the entireties only for real property

00:40:04.260 | or maybe allow tenancy by the entireties,

00:40:06.800 | and it's unclear as far as what it actually is,

00:40:10.960 | because it's not clearly put in place by statute,

00:40:14.240 | and the case law is uncertain.

00:40:16.120 | In addition, there are a number of states

00:40:18.320 | that have a bunch of wrinkles with regard

00:40:20.960 | to the exact level of protection that's provided

00:40:25.440 | by tenancy by the entireties.

00:40:27.320 | So in summary, if you live in a state

00:40:29.540 | that does provide for tenancy by the entireties,

00:40:33.160 | and if you, of course, you have to be married,

00:40:37.200 | so if you and your spouse can actually use this,

00:40:42.200 | then it is worth considering, and it is worth pursuing,

00:40:46.080 | 'cause it can be really a useful thing.

00:40:48.820 | If your state allows tenancy by the entireties

00:40:53.040 | for real property, then consider, of course,

00:40:56.480 | owning property using a joint ownership

00:40:59.320 | of tenancy by the entireties.

00:41:00.880 | However, if your state allows tenancy by the entireties

00:41:04.520 | for property in addition to real estate,

00:41:08.100 | then you should consider it for owning other assets.

00:41:10.880 | So for example, perhaps you have a business

00:41:14.620 | that you are structuring.

00:41:17.200 | Well, if you title the ownership of the business entity

00:41:21.240 | as tenancy by the entireties, it's possible

00:41:23.640 | that it can bring an additional level

00:41:25.440 | of protection from creditors.

00:41:28.680 | That can be useful.

00:41:30.260 | So there are a bunch of rules you need to follow.

00:41:32.280 | You need to make sure that you consult

00:41:33.700 | with somebody knowledgeable to make sure

00:41:35.160 | that everything is done.

00:41:36.920 | Tenancy by the entireties is easy

00:41:38.600 | to establish and designate.

00:41:40.000 | It's just simply a property designation.

00:41:41.720 | So it can be very, very simple.

00:41:43.080 | You don't have to write a trust.

00:41:44.040 | You don't have to pay for legal fees,

00:41:46.040 | but you just need to make sure that you think it through

00:41:47.880 | and establish it.

00:41:49.240 | Be, again, be aware that in all these cases,

00:41:53.640 | you do, of course, face a risk of divorce,

00:41:58.160 | and you have to ask yourself the question,

00:42:00.660 | am I going to regret this with regard

00:42:03.400 | to the potential for divorce?

00:42:05.380 | Hopefully the answer is no, but if the answer is yes,

00:42:09.660 | or I'm uncertain, or I'm uncertain if what would happen,

00:42:13.460 | remember that losing assets by way of divorce

00:42:17.300 | is probably much more likely than losing assets

00:42:20.240 | by way of a lawsuit.

00:42:22.900 | Now, next consideration outside of those types

00:42:25.920 | of joint ownership, and by way of review,

00:42:28.140 | tenancy in common, you can be tenancy in common

00:42:30.220 | with anybody.

00:42:32.020 | You can be joint tenants with rights of survivorship

00:42:34.880 | with anybody, but you have to be 50% equal owners,

00:42:38.060 | and you can be tenancy by the entireties ownership

00:42:40.380 | with your spouse.

00:42:42.420 | But those are just simply ownership designations.

00:42:47.140 | What if you own an asset in a separate entity?

00:42:51.620 | Well, you can do that, and so the types of entities

00:42:54.260 | would usually either be a trust, different kinds of trusts,

00:42:58.280 | but a trust, or a company of some kind,

00:43:02.360 | different kinds of companies.

00:43:03.720 | Let's talk about trusts.

00:43:04.720 | In general, personal trusts that are revocable

00:43:09.720 | do not provide any kind of asset protection.

00:43:14.860 | So, that was too strong of a statement.

00:43:17.560 | Personal revocable trusts, such as many people

00:43:21.400 | commonly have and commonly establish to own assets,

00:43:24.340 | such as a revocable living trust, usually this is done

00:43:26.580 | for estate planning purposes, this type of trust

00:43:29.580 | does not provide protection in court for your assets.

00:43:34.580 | It may provide some protection with regard to privacy.

00:43:39.880 | It may provide some protection with regard to

00:43:43.820 | just simply segmenting assets out,

00:43:45.940 | so that the ownership is not clear,

00:43:49.020 | but it's not gonna provide protection in court.

00:43:51.520 | The only kind of trust that would actually provide

00:43:53.800 | creditor protection in court would be an irrevocable trust,

00:43:58.120 | a trust where you've actually transferred assets

00:44:00.740 | into the trust, and you cannot receive those assets back.

00:44:05.800 | Now, there are different ways to do this,

00:44:07.560 | and there could be very compelling schemes

00:44:10.680 | that you could use that provide you with major benefits

00:44:13.600 | in addition to asset protection.

00:44:15.880 | For example, there are various types of charitable trusts

00:44:18.300 | where we could transfer assets into the charitable trust,

00:44:21.160 | you could receive a stream of income

00:44:22.980 | from the charitable trust,

00:44:24.200 | and that's an irrevocable transfer,

00:44:26.260 | thus meaning that that trust asset is no longer available

00:44:29.500 | to the claims of your creditors.

00:44:32.500 | You could establish assets, put assets into a trust

00:44:35.120 | for the benefit of your spouse,

00:44:36.680 | for the benefit of your children,

00:44:38.240 | and the assets in those trusts could be protected

00:44:41.300 | from the claims of your creditors.

00:44:43.320 | Also, it could be protected from the claims

00:44:44.800 | of their creditors, which is a very compelling reason

00:44:47.880 | for you to consider establishing a trust.

00:44:50.600 | Trusts can be powerful with regard to asset protection,

00:44:55.040 | but in order for them to work,

00:44:56.720 | you will have to fully give away the asset,

00:45:00.280 | and you cannot retain control over the asset,

00:45:05.280 | otherwise it will be available

00:45:08.000 | to the claims of your creditors.

00:45:10.360 | There are a number of different types of trusts

00:45:12.880 | that are specifically designated for asset protection.

00:45:17.280 | The most common of these that's fairly current

00:45:20.260 | would be called a domestic asset protection trust, a DAPT,

00:45:24.600 | a domestic asset protection trust.

00:45:26.600 | And this type of trust has a very interesting,

00:45:30.900 | I think it's very interesting, and it's worth considering.

00:45:36.280 | A domestic asset protection trust

00:45:39.000 | is an irrevocable, self-settled trust

00:45:42.780 | that is created and governed and protected

00:45:45.680 | under the specific statutes of certain states.

00:45:49.840 | The way they work is,

00:45:50.920 | once you place your assets into the trust,

00:45:54.560 | after a certain amount of time,

00:45:55.920 | which varies based upon different states,

00:45:58.480 | the assets are protected indefinitely from future creditors.

00:46:03.480 | And the reason they're so popular

00:46:05.640 | is because they're very simple.

00:46:07.480 | You don't have to file a separate trust-level tax return.

00:46:10.320 | All the tax liability stays with the grantor.

00:46:15.440 | They also don't have gift tax consequences.

00:46:18.520 | So you can avoid dealing with the gift tax registration.

00:46:22.500 | They're fairly simple.

00:46:24.120 | They're fairly affordable to create.

00:46:27.000 | They're fairly simple to set up, fairly simple to maintain.

00:46:30.440 | And there is a wide degree of latitude

00:46:32.200 | of the things that you can own with them.

00:46:34.120 | So for example, you can own your personal residence.

00:46:37.680 | You can put brokerage accounts.

00:46:40.120 | You can put LLC member interests into a trust.

00:46:44.360 | And you can coordinate them with other trusts.

00:46:47.600 | So you can have a domestic asset protection trust

00:46:50.440 | that holds an asset.

00:46:51.600 | And then the domestic asset protection trust itself

00:46:53.800 | is held by the revocable living trust that you also operate.

00:46:58.120 | Now, it's not that they're without any kind of hassle.

00:47:01.720 | For example, one of the most important things

00:47:03.880 | that actually makes it work in and of itself

00:47:06.920 | is you have to appoint a third-party trustee

00:47:09.880 | to approve any distributions from the trust.

00:47:13.740 | That's the whole reason why

00:47:15.640 | this has asset protection benefits,

00:47:17.600 | is you have to appoint a third-party trustee

00:47:20.120 | to approve any distributions from the trust.

00:47:23.880 | And so the idea here is that a trustee

00:47:28.840 | won't distribute assets from the trust

00:47:32.000 | if you are facing the threat

00:47:33.800 | of a creditor seizing your assets.

00:47:37.140 | So the idea is the trustee looks over at you and says,

00:47:40.480 | "Oh, Joshua's being sued,

00:47:42.800 | "and there are judgment creditors all around,

00:47:45.120 | "there's sharks in the waters.

00:47:45.960 | "We're not gonna approve any distributions

00:47:47.820 | "out of the trust."

00:47:49.640 | That's basically the way that they work.

00:47:51.840 | Now, are these effective?

00:47:53.780 | I don't know.

00:47:55.040 | I read the attorneys arguing about them.

00:47:58.560 | And the basic thing that I've come up with

00:48:02.300 | is they might be effective.

00:48:04.280 | The attorneys that I have read

00:48:06.000 | seem to say that they should work,

00:48:08.840 | but they're not as tested as some other things.

00:48:11.240 | And so time will tell.

00:48:12.960 | The other one big challenge is

00:48:14.840 | that they're not available in every state.

00:48:18.040 | It's my understanding that there are currently

00:48:19.720 | about 15 states that actually have laws

00:48:23.400 | regulating domestic asset protection trusts.

00:48:26.080 | Those 15 states are Alaska, Delaware, Hawaii,

00:48:31.080 | Mississippi, Missouri, Nevada, New Hampshire,

00:48:36.000 | Ohio, Oklahoma, Rhode Island, South Dakota,

00:48:40.800 | Tennessee, Utah, Virginia, and Wyoming.

00:48:45.560 | If you live in one of those states

00:48:48.840 | and you own property in those states,

00:48:51.840 | certainly I think this is worth your considering.

00:48:54.400 | These trusts are not perfect,

00:48:57.520 | but they are at least very much worth considering

00:49:01.720 | for those who live in those states.

00:49:03.460 | If you don't live in one of those states,

00:49:04.920 | should you use a domestic asset protection trust?

00:49:08.440 | My answer, my guess,

00:49:10.680 | not being an asset protection attorney, is probably not.

00:49:14.980 | The argument in favor of your using

00:49:17.360 | a domestic asset protection trust,

00:49:19.280 | even if you don't live in one of those states, is this,

00:49:23.420 | that the idea is, yeah, it might ultimately fail,

00:49:26.640 | but a state that doesn't have

00:49:29.760 | their own domestic asset protection trust legislation

00:49:33.080 | isn't saying they're not gonna recognize the trust.

00:49:36.600 | And you can make a good argument in court

00:49:39.000 | that they should protect the trust.

00:49:42.000 | And at the very least,

00:49:43.120 | you're making it more expensive to get at the asset.

00:49:46.360 | And remember, one of the biggest basic concepts

00:49:49.040 | of good asset protection planning

00:49:51.080 | is you want to make it as expensive and as time-consuming

00:49:55.400 | and as difficult as you possibly can

00:49:57.600 | for somebody to get at an asset.

00:50:00.360 | Even if you don't have ironclad legal protection

00:50:05.260 | like you might like, if you at least make it more difficult,

00:50:08.320 | more time-consuming, and more expensive

00:50:10.480 | for somebody to find an asset,

00:50:12.720 | for somebody to lay a claim against the asset

00:50:16.000 | and to collect on an asset,

00:50:17.360 | you're moved in the right direction.

00:50:20.000 | That would be the argument in favor

00:50:21.340 | of a domestic asset protection trust.

00:50:23.600 | They're less expensive

00:50:25.600 | than an offshore asset protection trust,

00:50:27.340 | which is probably the biggest benefit

00:50:30.600 | of a domestic asset protection trust

00:50:33.920 | instead of an offshore asset protection trust.

00:50:36.620 | I would tend to think

00:50:37.820 | of a domestic asset protection trust, in my understanding,

00:50:40.680 | for an asset that is physically inside of the United States

00:50:45.080 | and is physically located in one of those states,

00:50:47.160 | or if I'm domiciled in one of those states

00:50:49.480 | that has the legislation.

00:50:51.160 | So here, I think the best solution would be

00:50:53.200 | for something like a personal residence.

00:50:54.740 | If you live in a state

00:50:56.100 | that doesn't provide good homestead exemptions,

00:51:00.380 | then I think a domestic asset protection trust

00:51:02.520 | is worth your considering for something

00:51:04.120 | like a personal residence.

00:51:06.120 | One of the most popular states to consider

00:51:08.680 | is for a domestic asset protection trust,

00:51:12.480 | if you are gonna try to use the strategy

00:51:14.640 | of establishing the trust in another state,

00:51:16.680 | but then you living not in that state,

00:51:18.440 | would be the state of Utah.

00:51:20.360 | Utah protects assets,

00:51:22.120 | they had new legislation a few years ago,

00:51:24.640 | that they protect assets in the trust immediately

00:51:27.840 | against future creditors.

00:51:29.040 | So you can't have a creditor

00:51:30.600 | and then put assets in the trust,

00:51:31.920 | but assets put into the trust are protected immediately.

00:51:35.680 | Whereas some other assets,

00:51:37.600 | some other states don't begin protecting the assets

00:51:39.980 | against future creditors

00:51:40.960 | until they've been in the trust

00:51:42.000 | for a little while, a few years.

00:51:43.720 | Even assets that are placed in the trust in Utah

00:51:47.440 | are protected against existing creditors after two years.

00:51:50.920 | So that can be helpful as well.

00:51:55.400 | In Utah, a lawyer can serve as the trustee.

00:51:58.320 | So it can be much less expensive

00:51:59.820 | for you to establish a third-party trustee,

00:52:01.720 | you just simply pay a flat fee to a lawyer,

00:52:04.200 | instead of paying a trust company

00:52:06.200 | a percentage of the trust assets.

00:52:08.800 | And one of the downsides of domestic asset protection trusts

00:52:12.000 | is they're not bulletproof.

00:52:13.560 | For example, domestic asset protection trusts

00:52:16.080 | often don't protect assets against child support,

00:52:19.000 | alimony, taxes, or again, pre-existing lawsuits

00:52:24.000 | and things that are being claimed.

00:52:26.280 | One of the benefit of Utah is it clearly establishes

00:52:29.120 | there's no tax issues when selling your personal residence.

00:52:32.120 | So when you put your personal residence

00:52:34.020 | into a domestic asset protection trust,

00:52:36.160 | that doesn't limit your ability to use the exemption

00:52:39.280 | from having of sale,

00:52:41.200 | exemption of capital gain

00:52:42.320 | from the sale of a personal residence

00:52:44.480 | when you put the money into,

00:52:46.560 | put the asset into the trust.

00:52:48.840 | Anything beyond that,

00:52:51.200 | I'll let the attorneys argue about.

00:52:52.840 | I've read their arguments.

00:52:54.040 | Some people are very persuaded they're strong.

00:52:55.680 | Some people are persuaded that they're worthless.

00:52:57.360 | I don't know.

00:52:58.920 | But I think the best solution

00:53:01.120 | for the use of a domestic asset protection trust

00:53:03.640 | is for your personal residence,

00:53:06.280 | if you live in a state

00:53:07.400 | that has domestic asset protection trust legislation.

00:53:10.880 | And the idea is if you live,

00:53:12.400 | so let's walk through kind of a quick category of strategies

00:53:16.160 | for things that you would pursue

00:53:18.640 | to protect your personal residence.

00:53:20.440 | The first very best is to live in a state

00:53:23.800 | that provides for you a large amount

00:53:26.520 | or hopefully unlimited amount of homestead exemption.

00:53:30.040 | We talked extensively about that

00:53:31.560 | in the series on protecting your homestead

00:53:34.600 | or earlier in the series.

00:53:36.000 | So homestead exemption is thing number one.

00:53:38.800 | Thing number two,

00:53:39.840 | you would consider titling the asset

00:53:42.160 | as tenancy by the entirety.

00:53:44.080 | That's helpful as well.

00:53:45.920 | So, but that only helps you if you are married

00:53:49.400 | and you're living in the house with your spouse.

00:53:51.800 | So first is homestead exemption.

00:53:53.520 | Second is tenancy by the entirety.

00:53:55.840 | With that, some states is perfectly fine.

00:53:58.440 | That's all you need.

00:53:59.840 | For example, Florida has unlimited homestead exemption

00:54:03.240 | and the default titling for real estate owned by couples

00:54:06.880 | is tenancy by the entirety.

00:54:08.600 | So you don't actually have to specially designate anything

00:54:10.720 | in Florida, it's default.

00:54:11.960 | That's the designation, is tenancy by the entirety.

00:54:15.360 | From there, you move on to equity stripping.

00:54:18.160 | And so the concept is make sure that you don't have an asset

00:54:21.320 | that's not encumbered with a heavy mortgage

00:54:23.320 | or heavy liability.

00:54:24.640 | Don't have the equity in an unprotected asset.

00:54:27.520 | You, it would be foolish to live in a state

00:54:30.040 | that didn't provide homestead exemption

00:54:31.600 | and didn't provide a tenancy by the entirety protection

00:54:34.560 | and to own real estate that had a lot of equity in it,

00:54:37.840 | but not to have money in other accounts

00:54:40.040 | that are more protected from the claims of creditors.

00:54:43.760 | So you wouldn't wanna have a paid off house

00:54:45.460 | and no money in a 401k.

00:54:46.840 | From the perspective of asset protection planning,

00:54:49.060 | you better off have a house with a heavy mortgage on it

00:54:51.440 | and all your money in a 401k.

00:54:53.040 | 'Cause the 401k is practically bulletproof

00:54:55.840 | from creditors except for IRS and legal claims,

00:54:59.720 | some of the super creditors.

00:55:01.840 | But it's protected totally from the claims

00:55:03.920 | of all other creditors.

00:55:05.100 | But equity stripping is the next thing.

00:55:06.800 | Then domestic asset protection trust, I think,

00:55:08.760 | comes in to be as the next solution.

00:55:11.900 | So if you live in a state like Nevada, for example,

00:55:14.720 | Nevada has domestic asset protection trust legislation.

00:55:18.480 | Nevada has a homestead exemption of $200,000.

00:55:22.600 | So they'll protect $200,000 of your interest in a property.

00:55:27.600 | So if you're buying a high-end residence,

00:55:31.240 | you buy a house for a million dollars

00:55:33.920 | and you make a big down payment,

00:55:36.920 | 10 or 20%, $200,000, but you put the asset

00:55:40.560 | into a domestic asset protection trust,

00:55:43.020 | your mortgage in the beginning won't pay down much.

00:55:45.560 | So all of your equity in the house would be protected

00:55:49.120 | simply by the homestead exemption of $200,000.

00:55:52.640 | Now, Nevada domestic asset protection trust

00:55:55.120 | provides protection after two years.

00:55:57.520 | So then from then on, as the mortgage pays down the debt

00:56:00.860 | on the house, more and more equity is created.

00:56:04.480 | That equity is protected using

00:56:05.960 | the domestic asset protection trust legislation.

00:56:08.880 | So that can be a useful way of protecting your house

00:56:13.880 | for a very long time.

00:56:17.540 | And if you have a very simple trust,

00:56:19.720 | just holds one asset, a personal residence,

00:56:21.880 | doesn't really have any income,

00:56:24.000 | then the cost for a trustee to manage it

00:56:27.000 | should be really quite simple.

00:56:29.320 | So if you wanna buy a million dollar house in Nevada,

00:56:31.040 | that would be a worthwhile thing to consider.

00:56:33.440 | Other strategies just to kind of finish our list off

00:56:36.560 | on protecting your house.

00:56:38.080 | Then the next would be titling the house

00:56:39.920 | in a low-risk spouse's name for the reasons discussed.

00:56:43.560 | It's probably less effective

00:56:44.800 | than a domestic asset protection trust,

00:56:46.120 | but worth considering.

00:56:47.160 | And then of course, making sure

00:56:48.440 | that things are properly insured.

00:56:50.200 | So those are some useful strategies

00:56:52.000 | for a domestic asset protection trust.

00:56:54.080 | Now there are other kinds of trusts,

00:56:56.880 | and in many ways, the other trusts

00:56:59.200 | are probably more powerful.

00:57:01.920 | The big name here would be

00:57:03.440 | an offshore asset protection trust.

00:57:06.040 | That's probably the sexiest sounding,

00:57:08.440 | and in many ways, an extremely effective way

00:57:12.760 | to protect assets.

00:57:14.420 | An offshore asset protection trust

00:57:16.720 | is created with the goal of asset protection.

00:57:20.040 | How do you protect a big pot of money?

00:57:23.160 | It's an offshore asset protection trust.

00:57:24.680 | That's the goal for it.

00:57:26.000 | An offshore asset protection trust

00:57:28.400 | is an irrevocable, self-settled trust

00:57:31.880 | that lives offshore.

00:57:35.400 | And it has to live offshore

00:57:38.640 | to get the benefits of the foreign jurisdiction.

00:57:42.080 | Frequently, as you move the assets offshore,

00:57:45.100 | the first thing is you start to bring in

00:57:47.100 | other governments involved,

00:57:49.760 | other sets of legislation.

00:57:51.140 | For the sake of brevity,

00:57:53.240 | I'm gonna read you two pages

00:57:54.440 | from the ABA Consumer Guide to Asset Protection

00:57:57.760 | on an offshore asset protection trust.

00:58:00.940 | They use foreign asset protection trusts, same thing.

00:58:03.880 | A foreign asset protection trust

00:58:05.280 | is a trust that is set up in an offshore jurisdiction

00:58:07.840 | that has enabling trust legislation

00:58:10.320 | providing for substantial protection

00:58:12.200 | against creditors of the trust store.

00:58:14.800 | One of the greatest advantages of an FAPT

00:58:18.780 | is the fact that, by its very nature,

00:58:21.380 | any legal attack against the assets

00:58:23.860 | is transferred abroad to a different legal system.

00:58:27.100 | A foreign trustee is necessary

00:58:28.920 | for the efficacy of the FAPT.

00:58:32.060 | As stated, the biggest advantage in utilizing the FAPT

00:58:35.460 | is that assets can be placed offshore

00:58:37.740 | beyond the jurisdiction of the US courts.

00:58:40.580 | Some of the advantages of foreign asset protection trusts

00:58:44.600 | are as follows.

00:58:46.220 | Most foreign jurisdictions do not recognize US judgments.

00:58:49.860 | This may force a new trial on the merits

00:58:52.100 | in the foreign situs country.

00:58:54.620 | Some foreign situs jurisdictions

00:58:56.540 | require a much more difficult burden of proof

00:58:58.900 | for a creditor to challenge asset transfers

00:59:01.180 | to the foreign asset protection trust.

00:59:04.140 | Some jurisdictions have a statute of limitations

00:59:06.460 | for challenging asset transfers to an FAPT

00:59:09.660 | that begins to run on the date of transfer.

00:59:12.340 | Fees and expenses in litigating in foreign jurisdictions

00:59:15.420 | are substantial, thereby serving as a strong deterrent

00:59:18.340 | to foreign litigation.

00:59:19.900 | The foreign asset protection trust

00:59:21.260 | minimizes the likelihood of a fraudulent conveyance charge

00:59:24.100 | because of the difficulty to a creditor

00:59:26.220 | of proceeding against the transferee trustee

00:59:28.720 | located in the foreign jurisdiction.

00:59:31.320 | The foreign asset protection trust provides attachment

00:59:33.620 | against assets placed in the offshore structure

00:59:36.160 | outside of US jurisdiction.

00:59:38.460 | The foreign structure makes any type of an injunction

00:59:40.940 | against further disposition of assets extremely unlikely.

00:59:44.980 | The FAPT practically eliminates the possibility

00:59:47.660 | of the appointment of a receiver over the transferred assets.

00:59:51.200 | The foreign structure places the assets in a jurisdiction

00:59:53.640 | whose laws are favorable to debtors

00:59:55.580 | and hostile to creditors.

00:59:57.820 | An offshore trust with at least one US beneficiary

01:00:00.440 | is a grantor trust for tax purposes.

01:00:03.020 | As a result, the FAPT is a pass-through entity

01:00:05.900 | to the grantor, similar to a revocable trust

01:00:08.940 | when it comes to tax reporting.

01:00:11.260 | Transfers to FAPT are normally incomplete gifts.

01:00:15.320 | Accordingly, the assets are generally included

01:00:17.260 | in the grantor's estate for estate tax purposes.

01:00:20.320 | Most FAPTs provide for the office of a trust protector.

01:00:24.160 | The third-party protector has the power

01:00:26.120 | to remove the trustee and appoint a substitute trustee

01:00:29.540 | to change the situs of the trust.

01:00:31.780 | He or she can also veto any amendments

01:00:34.340 | or distributions made by the trust.

01:00:36.820 | Many times, the protector can be an entity

01:00:38.880 | or person not subject to the jurisdiction of a US court.

01:00:42.900 | Anti-duress provisions make it very difficult

01:00:45.140 | for any court order to have any impact on trustee

01:00:48.380 | or creditor attacks designed to force distributions

01:00:50.940 | from the trust to the creditor.

01:00:53.100 | To recapitulate, the foreign asset protection trust

01:00:56.300 | places assets out of reach of US courts.

01:00:59.220 | Creditors are required to litigate

01:01:00.780 | in offshore jurisdictions, utilizing offshore domicile laws

01:01:04.500 | and justice systems rather than the US court process.

01:01:08.980 | So my summary in short is the offshore asset protection trust

01:01:13.060 | is a powerful tool to use to hold assets

01:01:16.540 | that does bring substantial creditor protection.

01:01:19.540 | And I think the key here is first to recognize the downsides.

01:01:23.780 | The downsides are gonna be significant cost

01:01:26.060 | to create properly and to maintain.

01:01:28.980 | Thus, we really should be talking

01:01:30.660 | about a significant amount of assets,

01:01:33.300 | right amount of assets to do, I don't know,

01:01:36.820 | ask an attorney, but for anything less than a million bucks,

01:01:41.820 | I gotta guess it's not really worth pursuing.

01:01:45.820 | So if you've got several millions of dollars

01:01:48.300 | that you're considering protecting,

01:01:49.540 | I think that it's very much worth having those assets

01:01:53.780 | in the offshore trust, but you will have to count the costs.

01:01:56.700 | There are significant costs

01:01:58.180 | to maintaining the offshore trust.

01:02:01.580 | All of those benefits that you get

01:02:03.260 | by putting your trust in the Cook Islands

01:02:05.300 | or some other jurisdiction that's well-known

01:02:07.660 | for this type of planning,

01:02:10.020 | you get a lot of benefits for it, yes,

01:02:12.340 | but you also have to pay for it.

01:02:16.980 | The whole industry is propped up

01:02:18.580 | by all of the fees that you're gonna be paying,

01:02:20.140 | so it's gotta be worth it.

01:02:21.660 | I think it's very important to make sure you work

01:02:23.340 | with a competent attorney that will structure it

01:02:25.380 | in the way that's likely to have the most success.

01:02:27.620 | Offshore asset protection trusts were trumpeted

01:02:29.660 | by the legal industry for many years as being bulletproof.

01:02:34.020 | And then there've been a number of cases

01:02:35.940 | in which they were proven not to be bulletproof.

01:02:39.300 | Some people believe that they're not worth pursuing

01:02:42.180 | because they're not bulletproof.

01:02:43.940 | In my layman's reading,

01:02:46.020 | I would guess that they're probably still very, very strong,

01:02:49.100 | but they need to be structured properly

01:02:50.860 | and have the proper provisions brought in.

01:02:53.580 | And I would add one more thing.

01:02:55.180 | You, if you are using an offshore asset protection trust,

01:02:58.460 | you need to think carefully

01:02:59.780 | about your own internationalization plan

01:03:02.300 | with regard to your assets

01:03:03.740 | and also with regard to your person.

01:03:07.300 | If you are physically located in the United States,

01:03:12.220 | you personally are vulnerable,

01:03:15.580 | no matter where your assets are in the world,

01:03:17.460 | you personally are vulnerable to a US-based judge.

01:03:22.460 | And this is one of the big downsides,

01:03:24.380 | one of the big things that has happened

01:03:25.740 | with offshore asset protection trusts.

01:03:28.020 | The ultimate provision against you,

01:03:32.220 | if you have an offshore asset protection trust,

01:03:34.460 | is that you go into court and you say,

01:03:36.700 | "Listen, I can't make this trust give me assets

01:03:39.620 | because I'm under claim.

01:03:40.980 | I don't have the ability to scourge assets from the trust.

01:03:43.820 | The trustee does that.

01:03:44.980 | I don't have the ability.

01:03:45.820 | I can't even get income from the trust

01:03:47.860 | because you're under threat of judgment."

01:03:50.620 | And so the trust may be paying your credit card bills.

01:03:53.660 | It may be paying your other expenses,

01:03:57.060 | but it can't give you income.

01:03:58.140 | So you go in the court and you say,

01:03:59.300 | "I can't even have any income from the trust.

01:04:01.500 | I have no control over it.

01:04:02.980 | The trustees do it.

01:04:03.860 | I'm just a beneficiary of the trust

01:04:05.180 | and they won't give me any money."

01:04:06.500 | I'm simplifying,

01:04:07.380 | but that's basically the way the defense works.

01:04:09.260 | So assets are offshore.

01:04:10.740 | US courts can't touch them.

01:04:12.860 | The trustees are offshore.

01:04:14.580 | The protector is offshore in another jurisdiction.

01:04:17.020 | US courts have no jurisdiction

01:04:18.460 | over the trustees or the protectors.

01:04:19.940 | Thus, it's completely offshore.

01:04:21.580 | And yes, they pay my Amex bill, but that's it.

01:04:23.940 | So you laugh in the judge's face.

01:04:27.580 | And what the judge does is the judge says,

01:04:29.260 | "I don't believe you.

01:04:30.820 | I'm commanding you to go to prison

01:04:32.980 | until you actually go and pay this and pay it.

01:04:37.500 | And if you can't do it, if you can't pay it,

01:04:39.100 | you can't command your trustees to give you money

01:04:41.500 | in order to pay this claim

01:04:42.620 | that this legitimate creditor has against you.

01:04:44.580 | You're just gonna sit in prison

01:04:45.780 | until you can figure it out."

01:04:48.020 | Well, sitting in prison often has a significant effect

01:04:51.500 | on many people.

01:04:52.740 | And they eventually say, "You know what?

01:04:54.740 | I'm gonna figure out some way to get my trustees

01:04:57.580 | to give me some money so that I can get out of prison."

01:05:00.940 | So if you're using an offshore asset protection trust,

01:05:03.460 | you need to give thought to the trust,

01:05:05.420 | but you also need to give thought to yourself.

01:05:07.980 | Because if you are no longer physically present

01:05:11.900 | under the jurisdiction of the US judge,

01:05:14.220 | then now your creditor's claims against you

01:05:17.180 | are basically unenforceable.

01:05:20.620 | If your assets are offshore, and if you are offshore,

01:05:26.460 | then now you have a much stronger case.

01:05:30.340 | But I think many people

01:05:31.620 | who have offshore asset protection trusts

01:05:34.220 | have not given much thought to their own plan

01:05:36.940 | to be physically offshore in an extreme case,

01:05:39.700 | like I just described.

01:05:40.780 | And I think that's a real mistake.

01:05:42.320 | The second thing you need to be aware of

01:05:44.100 | is that it's possible that if a judge doesn't believe

01:05:47.420 | that your offshore asset protection trust is,

01:05:50.260 | they don't believe it,

01:05:51.380 | they can then now start to lay claim

01:05:54.040 | against your other assets in the United States,

01:05:57.660 | even if those other assets are considered to be bulletproof.

01:06:00.900 | So for example, you live in Florida,

01:06:03.740 | you have a, you live in Florida,

01:06:07.540 | you have a $5 million house in Florida,

01:06:10.540 | protected under the Homestead Exemption,

01:06:12.580 | you have $5 million in your 401(k) plan, and that's it.

01:06:17.580 | You don't have any other assets in the United States.

01:06:19.980 | You have a $5 million house

01:06:21.100 | and a $5 million in your 401(k) plan.

01:06:24.160 | But you are the beneficiary

01:06:26.000 | of an offshore asset protection trust

01:06:28.060 | that has $20 million in it.

01:06:30.640 | And now somebody wins a lawsuit against you for $10 million.

01:06:34.700 | Well, the judge says,

01:06:35.900 | "I want $10 million out of your offshore asset protection

01:06:38.320 | trust for you to pay your creditors."

01:06:39.460 | You say, "Sorry, judge, I can't get the money out."

01:06:41.560 | Well, and you say,

01:06:42.680 | "And by the way, you can't do anything against me

01:06:44.440 | because I have this house and I have this 401(k)."

01:06:48.360 | Well, in that situation,

01:06:50.180 | it's possible that the creditor and the court may impose,

01:06:56.060 | let's call it a surcharge, on your other assets.

01:07:01.940 | And even if those assets are exempt,

01:07:05.820 | the creditor can ask the court to surcharge the assets

01:07:08.820 | because they can't collect on the other assets

01:07:10.900 | because you've intentionally put those assets

01:07:12.900 | offshore outside of the creditor's reach.

01:07:16.940 | So the point is that if your assets are surcharged,

01:07:21.840 | now they're not available to you.

01:07:23.360 | They're not available to you

01:07:24.560 | to fund your living expenses, et cetera.

01:07:26.920 | So the idea that you can just use the offshore trust

01:07:30.760 | to protect all the assets that aren't protected

01:07:33.640 | by your exempt assets in the United States

01:07:35.600 | may be a problem.

01:07:37.720 | Now, that's not to say it's not without major costs.

01:07:42.720 | So we're talking here some extreme examples.

01:07:45.000 | And I'm already going much longer than I expected,

01:07:48.260 | but we could look at some of the cases.

01:07:49.460 | I've read a bunch of articles

01:07:50.420 | and dug into a bunch of the cases.

01:07:52.000 | But some of the cases

01:07:53.520 | where the Offshore Asset Protection Trust didn't fail,

01:07:57.780 | that's not the right word,

01:07:58.660 | but where it didn't work exactly as intended

01:08:01.300 | were against just major super creditors.

01:08:03.740 | The most famous one is the Arlene Grant case,

01:08:06.740 | but against super creditors, and that case was the IRS,

01:08:09.620 | with just a hugely expensive and time-consuming lawsuit.

01:08:14.460 | So back to our levels of protection.

01:08:17.180 | Just because an Offshore Asset Protection Trust

01:08:19.500 | may not be ultimately bulletproof against the IRS

01:08:23.780 | doesn't mean that it's not potentially helpful for you.

01:08:26.580 | You have the benefits of the privacy,

01:08:28.060 | you have the benefits of massive expense.

01:08:30.180 | You're just a very, very tough person

01:08:32.200 | to take a claim against.

01:08:34.380 | So again, don't let these things say,

01:08:35.940 | oh, because it can't have perfection,

01:08:37.860 | we're not gonna do anything.

01:08:39.140 | That's the wrong solution.

01:08:40.600 | Perfection is probably not possible.

01:08:42.940 | But if you've given thought to what assets

01:08:45.080 | are inside the United States,

01:08:46.380 | what assets are outside of the United States,

01:08:48.260 | and if you give thought to solving the problem

01:08:50.340 | of the location of your physical body,

01:08:52.400 | then you can avoid some of these problems.

01:08:57.060 | So give thought to that if you are pursuing

01:08:59.780 | an Offshore Asset Protection Trust.

01:09:02.580 | Now, I need to boogie on.

01:09:04.060 | Let's switch from trust.

01:09:05.340 | There are other types of trust.

01:09:06.260 | We can talk about land trusts.

01:09:07.940 | Land trusts can be very valuable

01:09:09.240 | from a personal privacy standpoint,

01:09:10.700 | especially for real estate.

01:09:12.180 | They're of limited value for asset protection,

01:09:15.060 | but they can be integrated with an LLC.

01:09:17.060 | We'll skip that.

01:09:17.940 | That's only of interest to real estate investors, really.

01:09:22.060 | So let's talk about business structure,

01:09:25.380 | specifically here, corporations

01:09:27.300 | and limited liability companies.

01:09:29.380 | Corporations and limited liability companies

01:09:31.580 | are your friends.

01:09:33.140 | The most important reason they're your friends

01:09:35.180 | is the obvious thing, that is, business 101.

01:09:38.500 | They protect you against liability.

01:09:42.140 | Yes, I've been speaking in this series fairly freely

01:09:46.020 | about how somebody sues you,

01:09:47.700 | but at the end of the day,

01:09:48.540 | there's gotta be a reason why somebody's gonna sue you.

01:09:51.580 | That reason may be much broader than it once was.

01:09:54.340 | You may be much more likely to be targeted

01:09:56.460 | because of your deep pockets,

01:09:57.940 | but there has to be a fundamental cause for the lawsuit.

01:10:01.580 | There has to be a reason, an argument for the case.

01:10:04.740 | Much of the time, that argument will arise

01:10:08.540 | from some activity.

01:10:10.460 | And so if you're engaging in activities,

01:10:12.540 | business activities, et cetera,

01:10:14.780 | you can potentially limit your liability

01:10:17.340 | based upon running those activities

01:10:20.020 | through a proper business entity.

01:10:22.580 | Now, hear me loud and clear.

01:10:24.700 | If your company is sued,

01:10:26.860 | it is extremely likely that the attorney

01:10:29.900 | bringing the lawsuit against you

01:10:31.180 | will name you personally as a defendant as well.

01:10:35.140 | So in any business structure that you do,

01:10:37.340 | you better make sure that you're properly managing it.

01:10:40.100 | You better make sure

01:10:41.260 | that you're doing your corporate record keeping,

01:10:44.180 | that you're having your annual meetings,

01:10:46.200 | that you're doing everything to maintain the corporate veil

01:10:48.900 | so that you don't automatically personally become liable.

01:10:51.980 | But a corporation is absolutely going to provide you

01:10:54.860 | with protection, properly maintained,

01:10:56.560 | with protection from the liability

01:10:58.060 | that can be created by your business activities.

01:11:01.020 | And so a corporation or an LLC

01:11:03.100 | can protect the liability from flowing through to you.

01:11:06.900 | Now, that means that the business itself

01:11:08.940 | will have to stand good for the debts.

01:11:11.420 | So if the business itself is found to be at fault

01:11:13.980 | in some problem,

01:11:15.900 | then you can expect that the business

01:11:18.820 | may go totally bankrupt,

01:11:21.660 | but at least it might not cover your other assets.

01:11:24.780 | So the business is important.

01:11:26.620 | In a business, think back to what I mentioned

01:11:28.540 | at the first part of the show,

01:11:30.020 | that you can use different business entities

01:11:32.660 | to segment out risk and liability

01:11:35.820 | and to segment out assets.

01:11:38.220 | So you can own valuable assets

01:11:40.620 | in businesses that have very low liability.

01:11:43.380 | You can segregate your liability

01:11:45.340 | into businesses that have very low assets.

01:11:48.220 | You can do what I talked about.

01:11:49.580 | You can have an operations company and a holding company.

01:11:52.300 | You can even do things like making sure

01:11:54.060 | that you can have an employee,

01:11:57.020 | what's it called?

01:11:57.860 | An employee leasing company,

01:12:00.620 | where you can set up

01:12:01.980 | a professional employment organization.

01:12:04.500 | And a professional employment organization

01:12:06.260 | is the organization that actually contracts

01:12:08.860 | with all of the employees.

01:12:10.620 | And then the professional employee organization

01:12:12.900 | leases the services of its employees

01:12:15.300 | to another company,

01:12:16.540 | because one of the biggest liability risks

01:12:18.260 | for the business is the actions of its employees.

01:12:22.180 | And this liability is potentially massive.

01:12:27.180 | Some of it is on things

01:12:28.500 | that you would think are common sense,

01:12:29.980 | such as your employee does something

01:12:32.820 | ordinary in the line of business,

01:12:34.220 | but does something negligent

01:12:35.420 | and causes problems with it.

01:12:38.620 | But it's far more than that.

01:12:41.140 | One famous story that you read about

01:12:46.740 | in the asset protection books

01:12:48.740 | was where there was a giant stadium concessionaire

01:12:52.540 | who sold alcohol to a person

01:12:54.460 | who was already inebriated.

01:12:56.580 | And that person drove home drunk,

01:12:58.620 | hit another vehicle,

01:12:59.980 | causing a major lifelong injury

01:13:02.380 | to the passengers of that other vehicle.

01:13:04.580 | So in the actual lawsuit that came about,

01:13:06.740 | who's the person that got the judgment against them?

01:13:08.980 | Was the drunk driver the person with the judgment?

01:13:11.940 | No, they didn't have any money.

01:13:13.420 | Why would they get the judgment?

01:13:16.500 | The employee who sold the alcohol

01:13:18.340 | because they sold it to a person

01:13:19.580 | who was already drunk?

01:13:20.500 | No, no, no.

01:13:22.020 | They didn't have any money either.

01:13:23.420 | The concession company who employed the concessionaire?

01:13:26.580 | Yes.

01:13:27.420 | And in that case,

01:13:28.260 | the judgment was for $110 million.

01:13:31.540 | $110 million.

01:13:34.500 | So it's possible that you could use

01:13:35.900 | some kind of employee,

01:13:38.580 | professional employment company

01:13:40.060 | to segregate the liability.

01:13:42.660 | Now, there are many other things that you could do,

01:13:44.620 | but it's too specific to individuals.

01:13:46.180 | The basic concept is that corporations,

01:13:49.260 | limited liability companies,

01:13:50.540 | limited partnerships,

01:13:51.380 | limited liability partnerships,

01:13:52.700 | and all of their brothers,

01:13:53.980 | these will help you to segregate risk.

01:13:57.460 | But they can also go the other way.

01:13:59.100 | See, generally, when we're thinking about asset protection,

01:14:03.300 | you're thinking about protecting your assets

01:14:06.860 | from the company.

01:14:07.980 | If I own a company,

01:14:09.940 | and then I have risks that I'm subject to

01:14:13.340 | because of the activities of the company,

01:14:15.220 | I'm thinking about protecting my assets

01:14:18.220 | that I own personally.

01:14:19.500 | Perhaps I own a portfolio of rental real estate assets,

01:14:22.260 | and I own a company.

01:14:23.500 | Why don't all my rental properties

01:14:24.900 | to be exposed to the claims of a creditor

01:14:27.420 | because of my company

01:14:28.620 | that has nothing to do with the rental properties?

01:14:30.420 | And so I run the company through a business entity.

01:14:33.860 | But business entities,

01:14:36.620 | specifically, very importantly, LLCs,

01:14:39.340 | can also protect you the other way

01:14:41.620 | because now you can hold an asset inside of an LLC.

01:14:46.500 | And the LLC itself can actually now be protected

01:14:51.420 | from other risks.

01:14:52.980 | Most importantly, if the LLC,

01:14:56.420 | and here the LLC,

01:14:57.780 | and a limited partnership has a place,

01:14:59.660 | but you want some kind of entity

01:15:01.700 | that has what's called charging order protection.

01:15:04.860 | This is the key, a charging order protection entity.

01:15:07.900 | There are a number of different kinds of entities

01:15:11.980 | that can have charging order protection,

01:15:16.380 | can be a charging order protected entity.

01:15:18.700 | Here are the ones that are protected

01:15:22.180 | by our charging order protected entity.

01:15:24.900 | Limited partnership, general partnerships,

01:15:28.260 | limited liability partnerships,

01:15:30.780 | limited liability, limited partnerships,

01:15:35.740 | and limited liability companies.

01:15:38.380 | Although, remember, it's important

01:15:39.860 | with limited liability companies.

01:15:41.780 | In many jurisdictions,

01:15:43.220 | only a multi-member limited liability company

01:15:46.260 | can have charging order protection.

01:15:49.300 | Now, it's important that you recognize

01:15:50.940 | a corporation is not a charging order protected entity.

01:15:56.580 | If a corporate shareholder is attacked by creditors,

01:16:01.580 | the creditor may seize all of the shares of stock

01:16:06.540 | owned by that creditor,

01:16:08.240 | up to the amount of the debt, of course.

01:16:10.300 | And then if the creditor can seize enough shares

01:16:13.420 | so that they can have control of,

01:16:15.700 | at least majority control of the company's voting shares,

01:16:19.580 | then the creditor can vote to liquidate the company

01:16:22.460 | and disgorge all the assets

01:16:24.100 | and then seize all of the assets of the company

01:16:26.180 | for the liquidation.

01:16:27.500 | And this is one of the major things

01:16:29.300 | that makes a corporation

01:16:31.380 | a pretty poor asset protection vehicle.

01:16:34.340 | Let's use two simple examples to demonstrate the point.

01:16:36.900 | Let's say that I own $100,000 worth of shares

01:16:39.860 | in Coca-Cola Corporation, and I have a creditor.

01:16:43.620 | Well, my creditor can now, of course, come after me

01:16:47.540 | and can take that $100,000 worth of shares

01:16:50.220 | of Coca-Cola stock.

01:16:51.940 | And then they can sell that stock on the open market

01:16:54.980 | and in that situation, they can use that $100,000

01:16:58.460 | to satisfy their judgment against me.

01:17:00.740 | The fact that Coca-Cola is a corporation

01:17:04.380 | protects me as a shareholder from the actions of Coca-Cola,

01:17:09.380 | but it does not protect my value of assets

01:17:13.340 | from my personal creditors.

01:17:15.100 | So corporations don't protect me and my assets

01:17:23.380 | against personal creditors.

01:17:25.420 | Now, if Coca-Cola, it's fairly simple

01:17:28.700 | and it should be obvious, the principle should be obvious.

01:17:31.340 | But if I have Joshua's Land Clearing Company,

01:17:34.540 | and Joshua's Land Clearing Company doesn't have any assets

01:17:37.940 | except all this equipment,

01:17:40.100 | and Joshua owns shares of the stock

01:17:43.260 | and I just own it in a corporation,

01:17:45.420 | well, my creditor can seize all of the shares of stock

01:17:49.020 | of my corporation just like they can seize the shares

01:17:52.740 | of stock of my Coca-Cola stock, which is also a corporation.

01:17:56.220 | And if they can seize value up to at least 50%

01:18:01.220 | of the voting share so that they can control my company,

01:18:04.540 | now they control the company,

01:18:06.660 | they can hold a board of directors meeting,

01:18:09.220 | they can vote to liquidate the company

01:18:11.580 | to sell all the assets on the open market

01:18:13.620 | and they could take my bulldozers and my semi trucks,

01:18:16.900 | they can sell them all, turn them into cash

01:18:18.900 | and use that cash to satisfy the judgment

01:18:21.980 | that they have gotten against me.

01:18:24.620 | So that is the problem with a corporation

01:18:27.980 | for the purposes of asset protection.

01:18:31.740 | So what's the solution?

01:18:33.820 | Well, the solution is what's called the charging order.

01:18:37.020 | And the charging order is built into the law

01:18:40.380 | that most states have adopted,

01:18:42.180 | the various sample laws, the recommended laws

01:18:47.180 | that most states have established,

01:18:50.780 | which governs and limits a creditor

01:18:53.780 | of a company's partner or owner,

01:18:56.500 | limits the ability of a creditor to access assets

01:18:59.580 | that are in excess of company distributions

01:19:02.300 | to the individual.

01:19:04.540 | And so generally the only remedy

01:19:06.580 | that's available to a creditor

01:19:08.380 | is the creditor can attach things

01:19:13.180 | that are actually distributed to me.

01:19:14.940 | And so think about this,

01:19:15.820 | let's say that you and I are in a partnership together,

01:19:19.300 | limited partnership.

01:19:21.020 | If we're doing business together

01:19:23.140 | and I have creditors that can come

01:19:26.740 | and can destroy the business

01:19:28.620 | and force the business to be closed

01:19:30.260 | and all the assets to be disgorged

01:19:32.900 | and sold at a foreclosure auction

01:19:34.340 | or sold at auction, whatever,

01:19:35.940 | that could really harm you.

01:19:38.060 | And so to protect you,

01:19:39.740 | what my creditor is going to be limited to

01:19:42.180 | is a charging order.

01:19:43.300 | And they'll only be able to access

01:19:45.340 | to actual distributions.

01:19:46.780 | So you and I can continue in business together

01:19:49.700 | and our limited partnership

01:19:51.740 | sends out $100,000 of income to you

01:19:53.860 | and sends out $100,000 of income to me,

01:19:56.900 | that $100,000 is going to be available to my creditors.

01:20:01.220 | Now what's even more important though

01:20:02.740 | is a charging order holder cannot control the entity.

01:20:06.820 | And thus they cannot control

01:20:08.780 | when distributions are actually made.

01:20:11.500 | So if the entity itself never makes a distribution

01:20:15.620 | to the partner that owes money,

01:20:18.060 | then no money is available here

01:20:21.500 | to the creditor.

01:20:24.740 | Now it would be not a good idea whatsoever

01:20:27.220 | to give a distribution to every partner

01:20:30.500 | except the partner that has a creditor.

01:20:32.100 | I think that would be thrown out by a judge,

01:20:35.980 | which is not a good situation.

01:20:38.780 | But it does provide a very important tool

01:20:42.740 | that we can use for asset protection.

01:20:44.820 | So by using a charging order protection entity,

01:20:47.940 | we can limit the ability of a creditor

01:20:50.180 | to attack the assets that are held

01:20:52.100 | in that charging order protected entity.

01:20:54.340 | But this is why it's so important

01:20:58.060 | that whenever you establish an entity,

01:21:00.020 | that you make sure that there are multiple people involved.

01:21:02.820 | Because in the same way that you can have

01:21:06.460 | a court pierce the corporate veil and say,

01:21:09.300 | "No, we're going to allow the owner's assets

01:21:12.540 | "to be available to the claims of the company,"

01:21:15.420 | if the company is not structured properly,

01:21:17.660 | you can have a reverse piercing of the corporate veil

01:21:20.740 | or reverse piercing of the entity.

01:21:23.300 | So in this case, if I own an LLC,

01:21:27.460 | and it's a single member LLC,

01:21:29.220 | and I own the asset and I own a business inside of that,

01:21:32.460 | but I now have a creditor that's available to me,

01:21:35.700 | let's say I have an LLC, it owns an investment property,

01:21:37.980 | but I have a creditor now that's a personal creditor,

01:21:40.140 | and the judge says, "You need to pay this debt,"

01:21:41.940 | and then they look at this LLC that I own,

01:21:43.740 | and I say, "Look, it's an LLC,

01:21:44.820 | "you can't do anything with it."

01:21:46.420 | Well, they look down at it and say,

01:21:48.020 | "No, you're the only beneficiary of this LLC,

01:21:50.220 | "so we're just going to give the control of the LLC

01:21:54.020 | "over to the creditor, the real estate's gonna be sold,

01:21:56.420 | "and then that sale of assets

01:21:58.540 | "is gonna be used to satisfy the debt."

01:22:00.560 | So you gotta make sure

01:22:01.400 | that there are multiple people involved

01:22:02.660 | and so that you properly make sure

01:22:05.980 | that you wouldn't be the only one harmed

01:22:07.340 | if the assets were sold out of the entity.

01:22:11.260 | Now, you can see here why we're getting to the end

01:22:13.860 | of our Asset Protection for Marimortals series.

01:22:16.820 | You're gonna need some advice,

01:22:18.280 | because only a handful of states

01:22:20.020 | have charging order protection available for LLCs.

01:22:25.980 | Most states have it available through a limited partnership,

01:22:29.780 | so depending on what you're trying to accomplish,

01:22:32.180 | you can do this,

01:22:33.020 | you can create a family limited partnership,

01:22:35.340 | you can create a family limited liability company,

01:22:37.620 | and you can use these entities

01:22:39.220 | to protect what you're doing.

01:22:41.260 | And one of the most valuable things about LLCs especially

01:22:46.260 | is they're so flexible in terms of the assets

01:22:48.900 | that they can own.

01:22:50.100 | So you can start to layer these things together,

01:22:52.980 | and you can mix and match almost anything.

01:22:57.500 | You gotta be careful with S-corporations.

01:22:59.540 | An S-corporation can own an LLC,

01:23:02.340 | and it's technically possible,

01:23:04.140 | if you have a single-member LLC,

01:23:05.860 | it's sometimes possible that a single-member LLC

01:23:08.180 | could own shares of an S-corporation,

01:23:10.660 | but you get into problems if you have multi-member LLC.

01:23:13.060 | So you can have an,

01:23:14.460 | your S, an S-corporation can own an LLC.

01:23:16.940 | But if you just simply talk about a standard C-corporation,

01:23:20.500 | a corporation can issue a corporate stock,

01:23:22.700 | and an LLC can own shares of corporate stock,

01:23:25.880 | and a corporation can own an LLC.

01:23:28.140 | So you can mix and match these things together

01:23:30.540 | to protect what you're trying to do.

01:23:33.420 | So let's say that you have a corporation,

01:23:35.580 | what should you do if you have a corporation

01:23:37.220 | and you're worried about protecting

01:23:38.380 | the corporate stock that you own?

01:23:40.220 | Well, bringing together some of these things

01:23:41.900 | that we talked about.

01:23:43.300 | Married couples can make sure that the corporate stock

01:23:46.560 | is owned by the less vulnerable spouse.

01:23:49.460 | That could be a good solution.

01:23:52.900 | It's tax neutral, it's not perfect,

01:23:55.980 | especially if it's a transfer.

01:23:57.900 | Could be subject to a fraudulent transfer ruling,

01:24:00.000 | but that's possible.

01:24:01.220 | You can transfer the shares of corporate stock,

01:24:04.780 | as long as it's not an S-corporation,

01:24:07.300 | S can be tricky, it can be done in some permutations,

01:24:10.460 | but so we're sticking with C-corp.

01:24:12.180 | You can transfer the shares of corporate stock

01:24:14.540 | to an LLC or to a limited partnership.

01:24:18.100 | And of course that LLC or limited partnership

01:24:20.220 | could be domiciled in the US,

01:24:21.460 | it could be domiciled offshore.

01:24:23.100 | As a capital contribution, that's a tax-free event.

01:24:26.180 | Now you can protect that stock because it can't be sold,

01:24:30.620 | 'cause now it can't be seized by a creditor,

01:24:32.940 | and it's now an asset of the LLC.

01:24:36.060 | In addition, you can stay on as the manager of the LLC

01:24:39.820 | or the limited partnership,

01:24:40.940 | so you can then control your corporate stock

01:24:42.920 | because you're the manager of the LLC,

01:24:44.860 | even if you're not receiving distributions from the LLC.

01:24:48.180 | It's possible that you can also remain a director

01:24:50.220 | or an officer of the corporation.

01:24:52.460 | So just because your stock is held by the LLC

01:24:54.700 | of the manager, as long as you follow things properly

01:24:58.200 | with regard to the tax planning there,

01:25:00.540 | you can still control the underlying corporation.

01:25:04.380 | You can move the corporate stock into an irrevocable trust.

01:25:07.660 | That can be set up for your children,

01:25:10.220 | other family members, other beneficiaries,

01:25:11.900 | a charitable trust can work.

01:25:13.360 | You can title your shares as tenancy by the entirety.

01:25:16.820 | So if you are in a state that allows non-real property

01:25:20.560 | to be protected by tenancy by the entirety,

01:25:22.700 | now that can provide significant benefits as well.

01:25:25.860 | So there are other benefits as well,

01:25:27.460 | where you can assess the share, issue proxies,

01:25:31.620 | or dilute your ownership, and some other things as well.

01:25:34.380 | But LLCs give you tremendous flexibility.

01:25:39.380 | Let me finish up with regard to entities.

01:25:42.220 | I've talked about a number.

01:25:44.140 | I just want to also point out to you

01:25:45.540 | that you can use some of those entities previously discussed

01:25:48.780 | such as IRAs to hold assets as well.

01:25:52.540 | So you can have a self-directed IRA,

01:25:55.420 | you can have a self-directed 401(k),

01:25:57.780 | you can have a self-directed ESA,

01:25:59.860 | educational savings account,

01:26:01.440 | you can have a self-directed HSA, health savings account.

01:26:04.860 | You can create a checkbook LLC,

01:26:06.980 | you can do your investing through those entities,

01:26:09.260 | and you can maintain the asset protection benefits

01:26:11.580 | of those asset entities,

01:26:13.220 | also the tax benefits of those entities,

01:26:15.380 | and still use it to own and control your investments.

01:26:18.260 | So there are a lot of benefits,

01:26:19.580 | things that you could pursue there with your IRA.

01:26:22.300 | With all of these different strategies,

01:26:25.140 | we've discussed a long range,

01:26:27.180 | and I guess I just should finish up with nominees.

01:26:30.760 | With nominees, other people that you trust

01:26:34.340 | just simply owning certain assets,

01:26:36.380 | doing certain things for you,

01:26:38.060 | some of that activity could be illegal

01:26:41.580 | if you did it wrongly,

01:26:42.820 | and you did not discuss it properly,

01:26:45.060 | and disclose things properly,

01:26:46.460 | or it could be completely legal

01:26:48.100 | and provide benefits for you of privacy

01:26:50.300 | and other things as well.

01:26:52.180 | Your risk, of course, with working with a nominee,

01:26:54.620 | somebody that you are asking to do certain things for you

01:26:57.800 | under their name, is of course, they're the owner.

01:27:00.140 | So you have no legal rights.

01:27:01.900 | But in a situation where you have

01:27:03.340 | strong relationship connections,

01:27:05.620 | that if you trust the relationship and trust the person,

01:27:08.140 | then working with a nominee can be helpful as well.

01:27:11.140 | With all of these options that we've talked about,

01:27:13.740 | you can look at almost any asset,

01:27:16.060 | and you can find an intelligent way to hold that asset.

01:27:20.680 | In almost every circumstance,

01:27:23.300 | maybe that's too strong,

01:27:26.320 | it's very hard for me to come up with an asset

01:27:29.140 | that should be owned by a person

01:27:30.900 | individually just in their name.

01:27:33.660 | The best asset for this type of thing

01:27:36.460 | is an asset that doesn't have

01:27:38.140 | any kind of ownership claim except possession.

01:27:41.060 | So when we talked about physical property,

01:27:43.460 | one of the major benefits of physical property

01:27:46.460 | is there's no titling to it.

01:27:48.540 | There's no titling to gold coins.

01:27:51.620 | There's no titling to cash.

01:27:53.180 | There's no titling to a valuable,

01:27:57.020 | you know, a Stradivarius violin.

01:27:58.960 | There's no titling to a valuable gun collection.

01:28:03.960 | These are just things that possession simply means ownership.

01:28:08.420 | And so with that,

01:28:09.660 | you have significant, massive levels of privacy.

01:28:13.460 | And as long as those assets are physically secured

01:28:16.020 | and are physically diversified,

01:28:17.660 | you have tremendous privacy.

01:28:19.460 | That privacy buys you major benefits on the front end.

01:28:23.900 | It makes you a smaller target.

01:28:25.700 | It makes you harder to locate.

01:28:27.100 | It makes you less likely to be sued.

01:28:29.000 | You don't have, with that ownership structure,

01:28:31.120 | you don't have legal protection

01:28:33.180 | when you actually have to make a statement of assets

01:28:36.000 | for your creditor if you lose a lawsuit.

01:28:38.440 | That's unlikely.

01:28:39.640 | In all these strategies, that's a pretty good one.

01:28:42.460 | So you can own assets personally in that situation

01:28:45.760 | of just because they're,

01:28:47.160 | and you get benefits from the privacy.

01:28:48.880 | Now with almost everything else,

01:28:50.240 | anything that has a record

01:28:52.000 | is going to be exposed to the public view.

01:28:55.320 | And so in this situation,

01:28:56.860 | you now have a space where privacy is extremely important.

01:29:01.860 | And that privacy can be the only benefit

01:29:04.360 | that comes from an entity itself.

01:29:06.720 | With, and the specific strategy

01:29:11.120 | would vary based upon the asset.

01:29:13.360 | Let's say that you purchase an RV.

01:29:17.040 | With an RV, there's no reason whatsoever

01:29:20.560 | other than perfect, I shouldn't say no reason.

01:29:23.480 | The only reason that I can think of

01:29:25.000 | to own something like an RV personally

01:29:28.120 | would be just the simplicity

01:29:30.480 | and the total elimination of cost.

01:29:33.060 | But if you go and buy something like an RV,

01:29:34.820 | here I'm thinking of a trailer is the simplest thing

01:29:37.060 | because it doesn't even have to be insured.

01:29:38.280 | Although you can insure something that's owned by it,

01:29:39.600 | it's not a big deal.

01:29:40.480 | You can do it with cars, do it with anything.

01:29:41.700 | But you go and you buy an RV.

01:29:43.680 | Well, put the RV into an LLC.

01:29:46.720 | Establish an anonymous LLC

01:29:48.880 | in one of the states that provides for such things.

01:29:52.000 | Cost you a few hundred bucks to establish.

01:29:54.200 | And you have a director that runs the LLC.

01:29:56.600 | You can own the RV there.

01:29:59.400 | You can insure it in the LLC.

01:30:00.760 | It's not a problem whatsoever.

01:30:02.280 | And now you've disconnected yourself

01:30:04.520 | from the ownership of that RV.

01:30:07.360 | Now in this situation, LLC is disregarded.

01:30:09.360 | No tax situations whatsoever.

01:30:11.920 | Plus you're gonna lose money on it in any way.

01:30:13.800 | But you at least get the benefits of privacy

01:30:15.660 | by establishing an entity.

01:30:17.240 | So you just should do the same thing with your cars,

01:30:19.280 | with your boats, with your RVs, et cetera.

01:30:22.040 | And even if those assets do not give you asset protection,

01:30:25.960 | the privacy in and of itself

01:30:28.040 | gives you a measure of protection.

01:30:31.020 | Now you can step it up another step.

01:30:35.400 | You can hold those LLC member units

01:30:38.180 | within some other entity.

01:30:40.960 | Could be a trust.

01:30:42.520 | You could hold them.

01:30:43.840 | You could just simply hold them with other people

01:30:45.740 | to get charging order protection with them

01:30:47.240 | if your state provides that for LLC.

01:30:49.640 | The point is the privacy is one thing.

01:30:51.680 | And then you can add in the actual legal protection as well.

01:30:55.720 | With things like your house,

01:30:57.440 | you can fairly easily use a common thing

01:31:02.040 | of a revocable trust.

01:31:03.380 | You can set it up with just a personal revocable trust.

01:31:06.560 | And now you can start to gain potentially some benefits

01:31:10.160 | for the privacy of the ownership of the house,

01:31:12.120 | depending on what you call that trust.

01:31:13.920 | But yet you can still,

01:31:15.240 | depending on the laws of your state,

01:31:16.240 | you can still benefit from your homestead exemption.

01:31:18.960 | You can still get your tenancy by the entireties.

01:31:21.920 | You can still benefit from all of those things,

01:31:23.800 | even though you provide some shield with a personal trust.

01:31:27.240 | As long as you don't have income,

01:31:29.520 | you have a fairly easy time

01:31:31.500 | of titling almost any of these assets

01:31:33.560 | and maintaining privacy as a major consideration.

01:31:38.080 | The thing that always breaks you

01:31:39.320 | is when you start to have income,

01:31:40.840 | because now you'll very quickly lose privacy.

01:31:43.440 | When you start opening bank accounts,

01:31:45.380 | when you start,

01:31:47.880 | insurance has a place,

01:31:48.880 | although that's a modest privacy risk.

01:31:50.960 | But anytime you start having income,

01:31:52.360 | then you start to have more significant,

01:31:55.200 | you lose privacy.

01:31:56.580 | It's very hard to have income and maintain privacy.

01:31:59.440 | Really the only way to do it completely,

01:32:01.740 | I'm not gonna tell you, it's too hard.

01:32:03.540 | So with assets that aren't income producing,

01:32:09.520 | a few hundred dollars,

01:32:10.520 | you can hold most of those assets

01:32:11.680 | at least privacy, privately.

01:32:13.880 | And now you start to look like a smaller fish.

01:32:16.280 | If you drive a company car,

01:32:19.400 | your boats and such are owned in anonymous LLCs,

01:32:23.240 | your house is owned in a trust,

01:32:24.720 | you just, you start to come down underneath the radar.

01:32:28.220 | Then you start to bring in

01:32:29.800 | the more robust asset protection

01:32:31.840 | for your business assets

01:32:33.980 | and your trust that you use,

01:32:37.000 | whether it's domestic asset protection trust,

01:32:38.920 | whether it's to hold LLC units for rental properties.

01:32:42.020 | I'm trying, without trying to show you exactly

01:32:46.000 | how every asset should be owned,

01:32:47.480 | 'cause how could I ever do that?

01:32:49.040 | Just trying to stimulate your thinking

01:32:51.560 | and to show you how all of these things can come together.

01:32:56.560 | Now, this is complex

01:32:59.200 | because we're thinking about asset protection,

01:33:01.360 | but we're also thinking about taxes,

01:33:03.600 | but we're also thinking about estate planning.

01:33:05.680 | And there are so many moving parts,

01:33:07.740 | it can be very, very complex.

01:33:11.380 | But here's my summary statement.

01:33:14.340 | For people with assets,

01:33:15.960 | it's hard for me to think why any asset should be titled

01:33:19.700 | in your personal name,

01:33:20.880 | other than something that's trivial

01:33:23.280 | or a minor asset that's for the sake of convenience.

01:33:26.880 | There is a spectrum of cost and complexity.

01:33:32.720 | And I don't think that everybody should have

01:33:35.720 | the most expensive, most complex situation,

01:33:39.800 | but you can establish things

01:33:41.420 | so that they fairly simply start to grow with you.

01:33:45.040 | And once you get used to creating LLCs

01:33:50.040 | or having them created for you,

01:33:51.480 | once you get used to managing

01:33:54.200 | the corporate formalities of an entity,

01:33:56.800 | then you can start to figure out

01:33:58.780 | what your personal level of comfort is

01:34:01.240 | for the administrative complexity,

01:34:02.920 | and you can systematically protect your assets step by step.

01:34:06.280 | There are probably solutions that are, in theory,

01:34:11.040 | legally perfect.

01:34:13.340 | But even if you don't arrive at legally perfect,

01:34:17.100 | you'll gain major benefits

01:34:18.600 | by just being a tougher person to sue.

01:34:21.460 | You'll gain major benefits by being thornier, pricklier,

01:34:24.520 | harder to pin down, harder to find,

01:34:26.960 | harder to figure out what you own,

01:34:29.040 | and that in and of itself will have value.

01:34:33.460 | I would encourage you, dig into some of this stuff.

01:34:35.840 | Get some asset protection books.

01:34:37.500 | Just start reading about it.

01:34:40.140 | Think about your own assets.

01:34:41.260 | It's probably fairly simple for most people.

01:34:43.980 | For most people, your biggest asset that's exposed

01:34:47.220 | is probably going to be your house

01:34:49.640 | and the equity in your house.

01:34:51.360 | So we talked about that in this show.

01:34:53.640 | Homestead exemption, tenancy by the entireties,

01:34:56.580 | if available in your state.

01:34:57.680 | Homestead exemption, based on the laws of your state.

01:35:01.100 | Strip the equity out, keep mortgage on your house.

01:35:03.740 | Mortgage money on your house

01:35:04.920 | is probably the cheapest money that's available,

01:35:07.660 | and it does a good job.

01:35:08.600 | Now there are fancy ways to equity strip your assets,

01:35:11.180 | but a mortgage on your house is probably simple enough.

01:35:13.860 | Consider a domestic asset protection trust,

01:35:15.620 | especially if you're in one of the states that allows it.

01:35:18.020 | Consider titling the house into the name

01:35:21.120 | of a low-risk spouse,

01:35:22.580 | and then make sure that you have

01:35:23.820 | umbrella insurance on your house.

01:35:25.460 | So there's a fairly simple action plan for your house.

01:35:29.020 | Your 401ks, IRAs, et cetera,

01:35:32.700 | those have built-in protection.

01:35:34.980 | So those things are well covered.

01:35:36.940 | What about for rental properties?

01:35:40.320 | Oh, I think you need to have a combination of LLCs.

01:35:43.520 | Make sure that you have some LLCs

01:35:45.840 | that have charging order protection on them,

01:35:48.360 | and then you would consider how those interact

01:35:50.960 | with possibly a land trust.

01:35:54.840 | But I think LLCs are your simple low-hanging fruit.

01:35:57.480 | What about your investment accounts?

01:35:58.800 | Well, investment accounts,

01:36:00.440 | you could possibly own investment accounts

01:36:02.160 | in a domestic asset protection trust.

01:36:03.800 | You could put them into an LLC

01:36:06.280 | that has charging order protection.

01:36:07.940 | You could move them offshore

01:36:09.460 | into an offshore asset protection trust

01:36:11.400 | if offshoring is part of your plan.

01:36:15.040 | Beyond that, it just grows from there,

01:36:17.040 | but it's the same basic tools figured out

01:36:19.140 | how to be applied to your situation.

01:36:21.300 | Unless you get on top of asset titling,

01:36:24.900 | I don't think that,

01:36:26.040 | well, I think it's a major solution

01:36:30.860 | that you need to dig into.

01:36:32.320 | Hope this wasn't too deep.

01:36:33.340 | I hope it was useful to you as I go.

01:36:34.780 | I will give you a quick ad for my course

01:36:39.340 | on how to survive and thrive

01:36:43.140 | during the coming economic crisis.

01:36:45.180 | And in that course, it's funny,

01:36:46.620 | one of the reasons I was talking about,

01:36:49.020 | much of that course was focused on international relocation

01:36:53.420 | during a time of financial crisis, not exclusively.

01:36:56.580 | And in fact, I give major warnings

01:36:58.400 | against international relocation.

01:37:00.460 | But I did an extensive segment in that particular course

01:37:04.740 | on why international relocation

01:37:07.520 | solves some significant problems for you

01:37:10.120 | with regard to creditors.

01:37:11.940 | And I even have alluded to that in this particular course.

01:37:14.860 | It's an extensive series on your removing yourself

01:37:18.100 | from your home government jurisdiction,

01:37:21.200 | probably the United States or wherever it is,

01:37:23.460 | because that can solve many of your major creditor problems.

01:37:27.660 | If you are exposed to the claims of creditors,

01:37:29.860 | and those claims are significant, et cetera,

01:37:33.100 | with your offshore asset protection planning,

01:37:36.060 | your offshore asset protection trust,

01:37:38.460 | you should have serious consideration

01:37:40.540 | given to the offshoring of your person

01:37:43.720 | to get your person out of the way of legal jeopardy.

01:37:47.660 | If you're interested in a lot of ideas

01:37:49.100 | and discussion on that, some pretty cool stuff

01:37:51.540 | that's very doable,

01:37:53.020 | come on by radicalpersonalfinance.com/store

01:37:56.180 | and sign up for the "How to Survive and Thrive

01:37:58.140 | During the Coming Economic Crisis."

01:37:59.780 | In that course, we talk about crossing international borders.

01:38:03.060 | We talk about forms of identification.

01:38:05.340 | We talk about crossing international borders surreptitiously,

01:38:08.660 | doing it quietly without necessarily passing immediately

01:38:11.380 | through immigration control.

01:38:12.700 | We talk about second passports.

01:38:14.160 | We talk about residencies,

01:38:15.640 | so that if you needed a place to go

01:38:17.380 | that was different from where you live,

01:38:19.040 | what would you do right now

01:38:20.260 | if you needed to leave the United States?

01:38:22.020 | And all of a sudden,

01:38:23.060 | you're potentially subjected to ruinous claims.

01:38:26.500 | Let's assume that the claims of your creditors

01:38:28.140 | are totally immoral.

01:38:29.580 | Thus, you are morally justified in avoiding them.

01:38:33.420 | Where would you go?

01:38:34.260 | How would you get there?

01:38:35.300 | And how would you make sure that you had money to spend

01:38:38.020 | if things were,

01:38:39.540 | how would you make sure you had money to spend?

01:38:41.700 | We don't often talk about running away from creditors

01:38:45.380 | as one of the reasons why you would have to bug out

01:38:49.180 | and get out of the United States.

01:38:50.920 | But yet, it's an entirely valid risk.

01:38:53.380 | And if you go around the world

01:38:54.420 | and you talk to many people who have left,

01:38:56.460 | you'll find that escaping from creditors

01:38:59.060 | was often one of the major situations.

01:39:03.380 | And I wanna be very clear.

01:39:05.540 | I try to do my best to be morally clear.

01:39:08.260 | I always advocate for paying debts.

01:39:10.980 | There are debts that are not moral,

01:39:14.300 | that legal but not moral.

01:39:16.340 | But even if a debt is both moral and legal,

01:39:18.820 | sometimes in that situation, you still have to get out.

01:39:22.100 | What would you do if the United States

01:39:23.340 | were in a financial crisis

01:39:25.540 | and you couldn't make it there

01:39:27.260 | and thus you can't earn enough money

01:39:28.660 | to support yourself and pay your debts

01:39:30.500 | and you need to get out?

01:39:31.700 | Well, frankly, if I lived in Des Moines, Iowa

01:39:35.900 | and I had a major financial problem,

01:39:39.220 | I were just totally dying, I couldn't make it anymore,

01:39:42.340 | I would probably leave.

01:39:43.480 | I'd move to Chiang Mai, Thailand

01:39:46.020 | and I'd start some new business online

01:39:48.240 | or start some new service

01:39:49.900 | where I can live on less than $1,000 a month

01:39:52.780 | and be in a tropical beach

01:39:54.260 | and be around a community of tons of expats, et cetera.

01:39:57.340 | So I'd go live in Chiang Mai, Thailand,

01:39:58.860 | live on the cheap and start a new business.

01:40:00.860 | Then I'd save the money from that

01:40:02.220 | and when I had the money, I would call up my creditors

01:40:04.460 | and I would say, "Listen, I got some money.

01:40:05.820 | "I'd like to come and pay you off and do it."

01:40:08.900 | So you have to be competent

01:40:11.300 | with all of the things that you can do

01:40:13.300 | and the tools and techniques

01:40:14.680 | so that you can do what is morally right in that situation.

01:40:18.700 | Hope you've enjoyed the show.

01:40:19.580 | If you're interested in more details on it,

01:40:20.820 | come to radicalpersonalfinance.com/store.

01:40:22.820 | That's how I pay my bills.

01:40:23.740 | So if that's of any interest,

01:40:25.060 | come on by and give it a try.

01:40:26.620 | Thank you.

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RPF0647-Asset_Protection_Planning_for_Mere_Mortals_-_Part_12_-_Intelligent_Asset_Titling