- Struggling with your electric bill? Get an energy assist from SDG&E and SAFE. You may qualify for an 18% discount. Visit SDGE.com/FERA to find out more. - Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now while building a plan for financial freedom in 10 years or less.

Today we pick up our asset protection planning from Mere Mortals series. This is part 12 of the series titled, called Intelligent Asset Titling. That's today's show, Intelligent Asset Titling. Quick bit of refresher, this series is focused on helping ordinary people to put in place basic asset protection plans. And I have focused heavily on knowledge and I've focused heavily on things that you can do without necessarily consulting a financial professional, consulting a legal professional.

All along the way in this series, I've tried to explain to you how certain things work and what things are available to you. And most of what we've talked about is just simply a matter of your knowledge and adjusting your affairs to line up with your knowledge. I haven't talked about the things that are more complex or the things where you need specific advice.

Now we're getting to the end of this particular series because we're starting to cross that barrier between things that are easy for a do-it-yourselfer to do versus things where you'll start to want to solicit professional financial advice, professional legal advice from an attorney who specializes in asset protection planning.

This show is very much on the borderline, but I'm still gonna take a crack at it because I at least want you to get some basic concepts. And then some of my listeners who are more confident in their DIY skills will be able to go ahead and put some strategies in place.

And some of my listeners will go ahead and start to choose to consult with legal professionals. But this is where we're gonna start to cross that border, which is why this particular series is coming to an end. This show is also where some of these strategies become more complex.

And individualized situations will make a much bigger difference. So just be aware of that. I'm gonna speak fairly broadly in this show. It'll still be useful. I'm not running from details, but there are so many little details that will come into play that we just gotta, we gotta be careful of that.

So first, be aware of the fact that it is probably not possible for you or me to create and actually maintain a perfect asset protection plan. Now, we might be able to design one. We might be able to put in place so many barriers and lines of defense that it is in effect the perfect plan.

But we may not be able to afford it to actually pay all the necessary fees, whether it's annual fees for entity maintenance, whether it's legal fees for entity creation, whether it's tax fees for tax compliance. And we may simply not be able to keep on top of the administrative complexity.

Many a good asset protection plan has failed because the person who established it didn't maintain it. For example, if you own a corporation, are you actually maintaining your corporation? Are you actually doing your annual meetings? Are you keeping your minutes? Are you keeping your corporate records properly so that they'll stand up in the court of law?

And the same thing applies to you even if you are maintaining a simpler entity or a series of entities such as an LLC or a series of LLCs. LLCs have fewer administrative burdens. That's one of the reasons why they're so popular. But in order to maintain the protection that an LLC can offer, you still need to be treating it very carefully and maintaining it very carefully.

That can become very burdensome after a while. And so there's always a balance here between what is ultimately ideal and what can actually be maintained. Be aware of that. I'm gonna talk about some concepts and you might go as my brain usually would to oh, I'll go to this extreme.

I'll tell you, I've been there, done that. And sometimes you just can't maintain the ultimate plan. So if you don't have an actual need for it, go slow, take it easy, little by little. The expense and complexity of a really fantastic plan might ultimately lead to it failing, in which case the simpler plan might have been a superior choice.

The other thing you should be aware of is as we go through this show, some things will work for asset protection, although they might not ultimately protect you in court. Remember we talked about the different stages of asset protection. Much earlier in this series, we spoke extensively on the subject of financial privacy.

And we talked about how if you have a lower profile because your assets are fairly private, that may help to protect you from simply not being seen as a potential deep pocket defendant. If you have a big footprint, you will be targeted more because of your deep pockets. There will be many potential people and attorneys looking for a deep pocket defendant.

But if you are not perceived to have deep pockets, that can protect you. But that doesn't necessarily mean that you can keep all of your assets totally secret. If you wind up having to submit to a debtor's examination to satisfy a judgment creditor, you're going to have to disclose your assets.

So when we talk about something simple, for example, let's say that you have an asset that you own personally, but you just simply place it into a trust or an LLC. That can provide some significant asset protection, although it's not the ironclad legal protection that means your creditors could never get their hands on it.

So some of these different things we're gonna talk about will provide de facto asset protection, which is real asset protection because it actually does, it makes you a lower profile. Somebody is not necessarily aware of everything you own, but it doesn't mean that ultimately it couldn't be undone in a court of law.

Whereas some of these strategies do have the legal strength so that they would stand up. And even if you had to disclose your ownership of a certain asset, that ownership can still be protected. Now, if you're aware of those things, we can dig in. A couple of basic concepts for you to consider when it comes to asset protection, specifically with regard to asset titling.

Remember that ownership of an asset is not necessarily synonymous with the use of an asset. And I'm from Florida, and one of the jokes that most Floridians would say, or would at least be aware of, and we've heard it dozens of times, is it's a lot better to have a friend with a boat than it is to actually own a boat.

And it's a joke because it's true. Everyone knows that there are those famous jokes about boats, which I've heard and said so many times, I'm not gonna repeat them. And so many people say, I don't wanna own a boat, I just wanna be able to use a boat. So if you've got a friend with a boat, most people who have boats don't really use them.

If you've got a good friend who doesn't mind your taking and using their boat, then in many ways, you've got the best of both worlds. The ownership of the boat may or may not be actually what you want. You may just want the use of the boat. And there are many ways for you to be able to use a boat.

You can use a friend's boat. You can use a boat club membership and use the membership's boats. Or you can use a boat that is owned by some entity in which you have an interest. So if you always remember that ownership is not necessarily the synonymous with use, you'll start to see how intelligent asset titling can be used.

Most of us would like to be able to use assets or get some certain beneficial interest from the asset, but that doesn't necessarily mean that we, individually, in our own names, have to be the one who actually owns the asset. I'm gonna stick with simple examples, but another simple example would be something like a company car.

If you're issued a company car by your company, you get to use that car under the terms agreed on with your company. Sometimes those terms are simply designated by your company that you can use it to go from your house to your office, or simply while you're on sales calls, or things like that.

Sometimes the use of the company car is fairly liberal and fairly broad. Now here, there's a big difference between tax planning, which is where you have to account for use of the car under the benefits program for personal use versus on-the-job use, which is often why things are restricted.

There's a big difference between tax planning and asset protection planning. Your company can own a car and you can use the car. And you, when someone's looking for your assets, you're not listed as an owner of the car. Now if you work for a company that's a publicly traded company with millions of stockholders, well certainly, you don't own the car.

But you still don't own the car, even if you work for a company that has one single stockholder, you. You still don't own the car. The company owns the car, and you have an agreement with the company as part of your overall benefits package for you to drive the car under the terms agreed on with your company.

Again, I'm gonna ignore the tax consequences, 'cause usually that's where we get into, well, how can I do this very tax efficiently? In this case, we're just talking about asset protection. You don't own the car anymore. Your company owns the car. But you can use the car. You can park the car in your driveway.

You can take the car to the grocery store. You can take the car to work. You can put your kids in the car, take them to soccer practice. You can use the car if it's agreed on in the agreement you have with your company. Now, that's not to say you don't own any asset.

What you own is shares of stock. You own shares of a company, and the shares of, the value of those shares of your company is going to include the book value of your car. So it's not as though you don't own an asset. In that case, you own the shares of the company, but you don't own the car.

I don't know of a simpler example I could use to try to show you that ownership is not necessarily synonymous with use. Now, as you start to look at your assets, and you start to look at things that you'd like to enjoy in your life, what you'll see is there are ways that you can structure almost anything you want to do so that you don't actually own the asset, but rather someone else or some other entity owns the asset.

That's basically what we do with asset titling. We think about what's the best way for us to title this asset. So think about that. Ownership is not synonymous with use. Next, when you're engaging in things that are risky in your life, it's important that you compartmentalize the risk, that you try to segregate the risk as best you can.

And that's where asset titling and entities are going to come into play. If you have, if you're exposed to risk, everybody is exposed to a certain amount of risk. If you're driving down the road, you're gonna be exposed to a certain amount of risk. If you walk out of your house, if you do anything, you're gonna be exposed to certain amounts of risk.

But then there are some activities in life that are going to expose you to more risk. And so one of the things that you wanna do with intelligent asset titling is you want to compartmentalize the risk as much as you can. The obvious way to do this here is to use, in the Western tradition, is to use business entities.

There is a long and robust history of court precedent and laws that protect the ability of companies to limit the risk. If you're concerned about whether this is okay, whether this is moral, et cetera, there are philosophical discussions on it. I'm not gonna spend any time on that discussion here.

It is, this is what occurs. And at least in the Western context, there is a very high degree of respect for the limited risk, the protection from risk, the limited liability of companies if the rules are properly followed, if the company is properly maintained. And these entities exist in virtually all Western societies and probably in almost any place in the world, but I'd be nervous about making blanket statements at places I haven't researched.

And so you wanna use these types of companies to compartmentalize the risk and limit the risk to you. With regard to asset titling, the other thing that you can do is you can make sure that you split assets into ownership structures that don't have risk. So you can use business entities to compartmentalize risk and you can split assets out of those entities into other entities that don't have risk.

Give you just a very simple example. Let's pretend that I were running a road construction company. And so as part of this road construction company or perhaps as part of a, we do road construction, we do site development, things like that. And so as part of this road construction company and the site development company, my company has the need for very big tractors, tools, bulldozers, trucks, all these big expensive machines.

These things are crazy expensive, which means that they're an extremely valuable asset. But the use of these machines also involves a significant amount of risk. There's a major amount of risk of property damage. If I back my massive bulldozer into somebody's property, I could punch a hole in the wall of their house, I could run over their car, something could happen.

And there's also just a general risk if I mess something up badly and I'm subject to a claim on the company. I face a lot of risk with this kind of big, heavy construction equipment. I have a lot of guys who are gonna be around this equipment and one of those guys might get their leg run over.

Our equipment is dangerous. So it's valuable, but it's dangerous. So I come to this problem and there are different ways to look at it. So the first thing that I would probably look at is as a prudent business owner, I would say I need to protect myself from the risk of my business.

Because if one of my guys runs over somebody and kills somebody, I wanna make sure that my personal assets are not available to the potential creditors. After all, if I've spent years working up, building up assets, I've got money, I've got investment assets, I've got real estate, I gotta make sure that's not exposed to the claims of creditors.

So the obvious solution is I start a company. I start the Joshua Sheets Land Company. And this is a limited risk entity. It's either a corporation or a limited liability company and I've established it as a company. Now, what does that do for me? First thing it does is it limits the ability of a creditor for the company to come at my personal assets.

Now, the company itself has to stand good for what the company owns, what the company owes. So if I have $500,000 of equipment in the company and one of my guys kills somebody and we have a $500,000 lawsuit, well, our creditor, in that case, the person who won the lawsuit against us, our creditor can force us to sell the equipment and satisfy the debt.

They can force us to disgorge the money from the company and pay off the debt. So the company has to stand good for the risks. But if I take this one step further and I think about segmenting out the ownership of the assets into an ownership structure that doesn't have risk, then what would probably be a better move is instead of establishing one company, to go ahead and establish two.

And what we do is company A is the operations company. The operations company is the company that hires the employees. It's the company that does the contracts, makes contracts with people to do work. It's the company that has the public face of all of the Joshua Sheets land clearing company.

That's the company that does the work. Now that company ideally should very have minimal assets. It must have enough money to have operating capital. We have to make sure it was properly funded. That would be very important for maintaining our corporate veil. So we gotta make sure it's properly funded, it does have some money in it and it's properly run, but ultimately it doesn't need to have everything in it.

Now the second thing that we would do is we would establish a second company that would be a holding company for the heavy equipment. And so this might be Joshua's heavy equipment renting company. And so that's the company that will own all of the heavy equipment. And then that company will establish a lease agreement with Joshua Sheets land clearing company, and it will lease the equipment to the land clearing company.

Well, what does this do? This splits the asset ownership out and it compartmentalizes the risk. The asset holding company will have almost no risk. First, it will have no employees. So the asset holding company will not be subject to liability for the actions of any employees. It won't be subject to any employee gets drunk and does something stupid while they're driving a bulldozer.

Well, there is no employee to do that. It won't be subject to a sexual harassment lawsuit. Doesn't have any employees. So there's no risk from employees. And we can cut off, it makes no contracts with customers other than the operations company. So we're not worried then about it going and breaking a contract.

We're not worried about this company damaging somebody's property, something like that. It just holds assets. So there's almost no risk, but it's an extremely valuable company because it has massive amounts of assets in it. So if you have a lot of assets, you wanna make sure that they're held within an entity that doesn't have a lot of risk.

If you're gonna have an entity that has a lot of risk, you wanna do your best to make sure that that entity has modest assets within it. You don't wanna expose everything to it. So you can split the assets out and move them and then just simply put in place legal structures.

And this is what almost any big company does. If you go and you see a Walmart truck driving down the highway that's delivering food to Walmart stores, that truck is not owned by the big Walmart corporation. It's owned by a subsidiary of the big Walmart corporation. It's a separate entity.

So big companies do this kind of thing all the time. You can too. There's nothing special that Walmart has access to that you don't. You have the same laws that govern your life as Walmart corporation does. They just simply have the money to pay people to establish the plans and to maintain the structures.

Back to that thing I said, the cost of compliance with expenses and then complexity of maintaining things. Because if you just simply run everything together, if you don't actually maintain the assets separately, if you don't actually maintain the companies separately, then it falls apart. Because I guarantee you, both corporations are gonna be named in the lawsuit.

And so that's where you wanna get good legal advice. You would ideally have different owners in both of those companies, a different set of owners. You wouldn't just wanna make it Joshua owns both of those together 'cause then you basically lose your asset protection. You want a different set of owners for the holding company than for the operations company.

But you can move assets into various kinds of structures. And this will also help you again with regard to privacy. Entities and structures are one of your keys for privacy. So let's first talk with some of the simple assets. And let's keep things very simple first. Who owns an asset?

Is it you? Are you the right person to own the asset? If you're gonna go and buy a boat, should you own the boat? Should someone else own the boat? One of the most valuable strategies is to think about a person who has relatively low risk. For example, if you are married, one of you will probably have a higher risk than the other.

If one person in a marriage relationship is a doctor, that doctor will be exposed to the risk of medical malpractices, every doctor knows. But if the other spouse is not a doctor, they'll have lower risk. If one spouse is highly public or very active in something, and the other spouse is more private, well, consider which spouse should own the boat.

Generally, if you're gonna own certain assets, you wanna think about making sure that a person with the lowest amount of risk owns the asset. This isn't a bad strategy, and it's not a bad strategy to start with. But as with most of these strategies, we can talk about some potential problems.

It's not a perfect strategy. It's good for you to consider, but it's not a perfect strategy. There are a couple problems that come in with just simply titling assets in the name of a spouse that has lower risk, that has less vulnerability. The first thing would be what state do you live in, and what are the laws that govern marital property in that state?

It makes a big difference whether you live in a community property state versus a non-community property state. In the United States, there are 10 community property states. They are Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In a community state, all marital property is automatically deemed to be owned half by each spouse, even if only one spouse is listed on the deed.

So if you live in a community property state, such as, most importantly for a huge number of my listeners, California, if you buy the boat or if you buy the house and you title it into the name of the lower-risk spouse, that won't automatically protect you because you're automatically understood to own 50% of the property, even though it's just simply titled in the name of the spouse.

That's a real problem. Now, it is possible to establish a transmutation agreement, which is a post-nuptial agreement that indicates that you are keeping a certain asset outside of the community estate. Even in a community state, just because somebody owns something doesn't mean it automatically becomes community property. For example, if you own a house prior to becoming married, you don't lose the ownership of that house to community property.

But if you buy a house after becoming married, then it's automatically considered to be community property. So you could establish a transmutation agreement and have a post-nuptial agreement in place that would designate a certain asset to be still owned by one single spouse, the spouse that has, in your case, the lower amount of risk.

That can work. But you should then next see the obvious risk would be what would then happen in divorce. One of the most likely forms of asset protection that most people would wind up needing would be in a divorce. If we were to deal with the probability of your being sued because you were a deep pocket creditor and losing a lawsuit versus the probability of your becoming divorced and losing assets in a divorce agreement, I don't know the statistics, but the threat of number two is far higher than the threat of number one.

So the action that you take that could protect you from threat number one could also subject you to much greater risk for threat number two. If my wife and I are married and we title all of our assets into her name and we clearly establish that as non-community property, as non-marital property, we clearly establish it to be separate property, her separate property, and then we go to divorce court, well, she'll have all that property on the other side of divorce court.

And if she doesn't have it on the other side of divorce court, we'd go back to the asset protection plan. It wouldn't protect us in the asset protection plan because states are increasingly attacking this idea and increasingly considering more and more that all of the assets of both spouses are considered to be available for creditors.

There is an additional, there are wrinkles in different states, but there's a long list of states that are starting to approve court actions where just because it's titled in one spouse's name doesn't mean it's not necessarily available to the other spouse's creditors. The other big risk you would face would be making gifts to a spouse could very easily run afoul of the fraudulent transfers legislation because gifts are very tricky to do them right.

Now, so now if you were do that, if you make a gift to your spouse long before any circumstances leading to a lawsuit actually happen, then you don't really need to worry about the fraudulent transfers legislation. But if you all of a sudden, you know, you go and wind up accidentally killing somebody, and then the next day you go and transfer all of your assets and you establish a transmutation agreement making sure that your spouse owns all the assets, you've got a problem.

That could very easily be ruled as a fraudulent transfer. You say, well, maybe I could sell the assets to my spouse. Problem is you have now sold assets to an insider, and what do you tell the court as to why you said all of a sudden the day after you killed somebody or the month after you killed somebody, you all of a sudden sold all your assets to your spouse.

If they can, if the judge can determine that that sale was to protect assets, which is in that case probably the only logical explanation for your actions, then that in and of itself can be deemed as evidence of your intent to defraud your creditors. And so thus at that point in time, that transfer can be undone.

So the first thing to think about is who should own something? Should you own it or should somebody else? And that most likely somebody else would be your spouse, especially if your spouse owns lower amounts of risk, has lower amounts of risk. Now this could also then add administrative complexity.

For example, over the years as my wife and I have titled various assets, we've often found the challenge of just simply managing the assets. If both of you are listed as the owners of a certain asset, then all of a sudden now both of you have to sign all the papers.

And so something as simple as having a car that's owned by both of you now requires two sets of signatures, requires two people to sit in line for five hours at the DMV and deal with all the government stuff. It just, it winds up being complex. So again, we have the problem here of administrative complexity as compared to perfect solution.

Now, there are some perhaps more powerful things to consider when we come to ownership. And that would be something like joint ownership. When we talked just a moment ago about one spouse or the other owning the asset, we were talking about one individual owning the asset and which individual should it be.

And by the way, that individual certainly doesn't have to be just you and your spouse. And in fact, at the end of the show, I'll touch briefly on nominees, but let's say that your dad is retired and your dad goes and buys a boat and just so happens to park it at your house and allow you to use it whenever you want to.

And you just so happen to have given your dad a large gift of money a couple years ago for him to buy a boat. Well, you face a small risk of possibly your dad getting sued and then the boat that he owns becoming subject to a creditor. But if your dad is retired, doesn't have any major exposure, it's probably not that big of a deal.

And if you don't think that your dad is just all of a sudden gonna take the boat and run away in the middle of the night and sell it, probably the fact that your dad owns the boat, but you happen to use it whenever you want is a pretty decent, very simple asset protection plan for your boat if you have a high profile.

So that would be the strategy of using a nominee. Nothing illegal about anything I just said, it's all perfectly above board. But that's the strategy of using a nominee. We'll cover that at the end of the show. So what about other forms of owning an asset together? What about actually having some sort of co-ownership?

Well, here there are three basic types of co-ownership. You need to understand what they mean so that if you ever own an asset with another person or another entity, you understand what your rights and protections are. The first type of co-ownership is called tenancy in common. Tenancy in common.

Now the way I think of tenancy in common is it almost works like shares of stock work in a corporation. When you hold property as tenants in common with another person, each person who owns, who's a joint owner in that property, if it's held tenancy in common, each person holds a distinct and separate share of the property.

That share could be any portion. It could be 50/50, it could be 25/75, doesn't really matter, but each person holds a separate distinct share. When the property is sold, each person receives income based upon their share of the property. Now in a tenancy in common relationship, each person has the right to transfer their ownership interest to someone else without the consent of the other owners.

And so, my dyslexia kicking in. So like shares of stock, you can just simply sell them to another person without asking the other partners whether or not they will allow you to sell them. So that's the way that tenancy in common works. In many cases, tenancy in common is the default way that you have joint ownership.

It does not include any rights of survivorship. It doesn't protect the rights of the other person. Each person could just simply sell their portion of a property. So it can be useful. Let's say that you and I own a piece of real estate together. Well, we don't wanna go necessarily, we've decided we don't wanna go and establish a corporation or LLC and issue shares of stock or issue membership units in order to designate that percentage of ownership.

So we just list ourselves as tenants in common in the property. I can go and sell my partial interest in the property anytime I want. That can be useful. You don't have to be beholden to me. But the problem is it doesn't help anything with regard to asset protection.

If you and I own a piece of real estate together and I have a 25% ownership and you have 75% ownership and I have a judgment creditor, that judgment creditor can foreclose, force the sale of the property. And after the foreclosure sale is held, you'll receive 75% of the proceeds of the foreclosure sale, but I'll receive, but my creditors will receive 25%.

So the tenancy in common ownership structure is not at all helpful with regard to asset protection. The next form of joint ownership is called joint tenancy with rights of survivorship. And in the case of similar to tenancy in common, in joint ownership, you can have different percentages of people, but the only trick is when one of the tenants dies, the property automatically passes to the other joint owner.

Now, joint tenancy with rights of survivorship can be extremely useful with regard to estate planning. It can be a very simple way of making sure that somebody that you want to receive the property receives it automatically at your death without the property passing through a probate court. So it can be very useful for estate planning.

However, it's not useful for asset protection planning. Just like we talked about with tenancy in common, a creditor can attach an asset, can foreclose on an asset, can partition an asset, and they can take the ownership of something that's owned with joint tenancy with rights of survivorship, just like with tenancy in common, if you wind up owing a creditor.

And what's worse is for some assets that are easily divisible, like things like bank accounts or stock ownership accounts, things like that, in those cases, the way that joint ownership with rights of, joint tenancy with rights of survivorship works, either of the joint tenants can access all of the account.

So where I frequently see this is, let's say you have an elderly parent, and that elderly parent doesn't want to, they have a checking account and a stock account, and let's say there's $100,000 in there, and they don't wish to make that account pass by probate court, set up a will, deal with all that.

So what they do is they make it joint tenancy with rights of survivorship with one of their children, and that child becomes a joint tenant owner of the account. Now this can be very simple because when the parent dies, the younger child just simply automatically has full ownership of the account.

But during the time while both partners are alive, both partners can use any amount of the money. The parent can spend all the money, and the child can spend all of the money. And so because of this, a creditor of either of those people can take all of the money.

So if the son is a high target, that son is subjected to a lawsuit, winds up with a judgment creditor, all of the mother's assets that are in that account can be taken in order to satisfy the debt. The son can say, "Listen, this is not my money. "It's my mom's money." But it doesn't matter.

The way the law works, it is the son's money. So a safer solution, by the way, if you're in that situation, a safer solution would be to title the asset. The asset could be simply arranged to pass on through the probate court. That's not that big of a deal.

But a better solution would be to establish a living trust, a revocable living trust, title the assets into the revocable living trust, make the son the successor beneficiary of the asset, and then give the son a durable financial power of attorney so that the son can make any kinds of changes on the account if the parent winds up incapacitated in some way.

So that would be a better solution that provides protection. Now in that situation, back to the asset protection standpoint of it, the money that's in the revocable living trust would still be available to the parent's creditors. The revocable living trust doesn't protect from the parent's creditors. But with regard to the child's creditors, I guess I used son and mother, with regard to the son's creditors, now there is no asset that is exposed to the son's creditors 'cause the son doesn't own anything.

The son has a durable power of attorney, which means that he has the ability to make changes on the account, but he has to do that as an agent of his mother. And then at some point in time, he may become a beneficiary of the trust. But those are not assets that a creditor can access because they're not any ownership.

It might be benefits, it might be a beneficial, it's not a beneficial interest. It might be the future potential of ownership, but it's not actually ownership. So it's accomplishing the same thing that joint tenancy with rights of survivorship was accomplishing, but it's doing it in a much safer way.

In summary, joint tenancy with rights of survivorship can be useful in estate protection or estate planning. It can be useful, although there's some many cases where it winds up hurting you, but it'll go, the property, if it's owned joint tenancy with rights of survivorship, it'll go to the joint owner on the person's death.

That's simple. As long as that's not a problem, you can use that and it'd be useful, but it doesn't provide any useful asset protection benefits, which brings us to the third type of common ownership, which is called tenancy by the entirety. Tenancy by the entirety is the type of co-ownership that can have really meaningful benefits with regard to asset protection.

Tenancy by the entirety is a type of ownership that's only available to a husband and wife, and it must, but what it provides is it provides an equal, indivisible interest in the property. So if my wife and I own a house together, each of us is considered to have an equal 100% interest in the property, if it's held as tenancy by the entirety.

And so because each of us has an equal 100% interest in the property, nothing can be done without the consent of the other spouse. So if I own a house and it's owned in a tenancy by the entirety state, which is the big limitation of tenancy by the entirety, it's only allowed in certain states, but if I own a house, TBE, then even if I get sued, and I'm not protected under Homestead Exemption, even if I get sued and I lose the lawsuit, because my house has a complete undivided interest in the house, she can still own the property, and the property cannot be taken, it cannot be foreclosed on.

I can't just go over the list of states that provide tenancy by the entirety protection because there are a bunch of wrinkles for every state. Some states simply do not allow tenancy by the entireties. A few states, for example, California, Connecticut, Iowa, Maine, Minnesota, Nevada, New Hampshire, New Mexico, North Dakota, South Dakota, Washington, West Virginia, and Wisconsin don't allow tenancy by the entireties.

Now, the remainder of the states either do allow or allow tenancy by the entireties only for real property or maybe allow tenancy by the entireties, and it's unclear as far as what it actually is, because it's not clearly put in place by statute, and the case law is uncertain.

In addition, there are a number of states that have a bunch of wrinkles with regard to the exact level of protection that's provided by tenancy by the entireties. So in summary, if you live in a state that does provide for tenancy by the entireties, and if you, of course, you have to be married, so if you and your spouse can actually use this, then it is worth considering, and it is worth pursuing, 'cause it can be really a useful thing.

If your state allows tenancy by the entireties for real property, then consider, of course, owning property using a joint ownership of tenancy by the entireties. However, if your state allows tenancy by the entireties for property in addition to real estate, then you should consider it for owning other assets.

So for example, perhaps you have a business that you are structuring. Well, if you title the ownership of the business entity as tenancy by the entireties, it's possible that it can bring an additional level of protection from creditors. That can be useful. So there are a bunch of rules you need to follow.

You need to make sure that you consult with somebody knowledgeable to make sure that everything is done. Tenancy by the entireties is easy to establish and designate. It's just simply a property designation. So it can be very, very simple. You don't have to write a trust. You don't have to pay for legal fees, but you just need to make sure that you think it through and establish it.

Be, again, be aware that in all these cases, you do, of course, face a risk of divorce, and you have to ask yourself the question, am I going to regret this with regard to the potential for divorce? Hopefully the answer is no, but if the answer is yes, or I'm uncertain, or I'm uncertain if what would happen, remember that losing assets by way of divorce is probably much more likely than losing assets by way of a lawsuit.

Now, next consideration outside of those types of joint ownership, and by way of review, tenancy in common, you can be tenancy in common with anybody. You can be joint tenants with rights of survivorship with anybody, but you have to be 50% equal owners, and you can be tenancy by the entireties ownership with your spouse.

But those are just simply ownership designations. What if you own an asset in a separate entity? Well, you can do that, and so the types of entities would usually either be a trust, different kinds of trusts, but a trust, or a company of some kind, different kinds of companies.

Let's talk about trusts. In general, personal trusts that are revocable do not provide any kind of asset protection. So, that was too strong of a statement. Personal revocable trusts, such as many people commonly have and commonly establish to own assets, such as a revocable living trust, usually this is done for estate planning purposes, this type of trust does not provide protection in court for your assets.

It may provide some protection with regard to privacy. It may provide some protection with regard to just simply segmenting assets out, so that the ownership is not clear, but it's not gonna provide protection in court. The only kind of trust that would actually provide creditor protection in court would be an irrevocable trust, a trust where you've actually transferred assets into the trust, and you cannot receive those assets back.

Now, there are different ways to do this, and there could be very compelling schemes that you could use that provide you with major benefits in addition to asset protection. For example, there are various types of charitable trusts where we could transfer assets into the charitable trust, you could receive a stream of income from the charitable trust, and that's an irrevocable transfer, thus meaning that that trust asset is no longer available to the claims of your creditors.

You could establish assets, put assets into a trust for the benefit of your spouse, for the benefit of your children, and the assets in those trusts could be protected from the claims of your creditors. Also, it could be protected from the claims of their creditors, which is a very compelling reason for you to consider establishing a trust.

Trusts can be powerful with regard to asset protection, but in order for them to work, you will have to fully give away the asset, and you cannot retain control over the asset, otherwise it will be available to the claims of your creditors. There are a number of different types of trusts that are specifically designated for asset protection.

The most common of these that's fairly current would be called a domestic asset protection trust, a DAPT, a domestic asset protection trust. And this type of trust has a very interesting, I think it's very interesting, and it's worth considering. A domestic asset protection trust is an irrevocable, self-settled trust that is created and governed and protected under the specific statutes of certain states.

The way they work is, once you place your assets into the trust, after a certain amount of time, which varies based upon different states, the assets are protected indefinitely from future creditors. And the reason they're so popular is because they're very simple. You don't have to file a separate trust-level tax return.

All the tax liability stays with the grantor. They also don't have gift tax consequences. So you can avoid dealing with the gift tax registration. They're fairly simple. They're fairly affordable to create. They're fairly simple to set up, fairly simple to maintain. And there is a wide degree of latitude of the things that you can own with them.

So for example, you can own your personal residence. You can put brokerage accounts. You can put LLC member interests into a trust. And you can coordinate them with other trusts. So you can have a domestic asset protection trust that holds an asset. And then the domestic asset protection trust itself is held by the revocable living trust that you also operate.

Now, it's not that they're without any kind of hassle. For example, one of the most important things that actually makes it work in and of itself is you have to appoint a third-party trustee to approve any distributions from the trust. That's the whole reason why this has asset protection benefits, is you have to appoint a third-party trustee to approve any distributions from the trust.

And so the idea here is that a trustee won't distribute assets from the trust if you are facing the threat of a creditor seizing your assets. So the idea is the trustee looks over at you and says, "Oh, Joshua's being sued, "and there are judgment creditors all around, "there's sharks in the waters.

"We're not gonna approve any distributions "out of the trust." That's basically the way that they work. Now, are these effective? I don't know. I read the attorneys arguing about them. And the basic thing that I've come up with is they might be effective. The attorneys that I have read seem to say that they should work, but they're not as tested as some other things.

And so time will tell. The other one big challenge is that they're not available in every state. It's my understanding that there are currently about 15 states that actually have laws regulating domestic asset protection trusts. Those 15 states are Alaska, Delaware, Hawaii, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, and Wyoming.

If you live in one of those states and you own property in those states, certainly I think this is worth your considering. These trusts are not perfect, but they are at least very much worth considering for those who live in those states. If you don't live in one of those states, should you use a domestic asset protection trust?

My answer, my guess, not being an asset protection attorney, is probably not. The argument in favor of your using a domestic asset protection trust, even if you don't live in one of those states, is this, that the idea is, yeah, it might ultimately fail, but a state that doesn't have their own domestic asset protection trust legislation isn't saying they're not gonna recognize the trust.

And you can make a good argument in court that they should protect the trust. And at the very least, you're making it more expensive to get at the asset. And remember, one of the biggest basic concepts of good asset protection planning is you want to make it as expensive and as time-consuming and as difficult as you possibly can for somebody to get at an asset.

Even if you don't have ironclad legal protection like you might like, if you at least make it more difficult, more time-consuming, and more expensive for somebody to find an asset, for somebody to lay a claim against the asset and to collect on an asset, you're moved in the right direction.

That would be the argument in favor of a domestic asset protection trust. They're less expensive than an offshore asset protection trust, which is probably the biggest benefit of a domestic asset protection trust instead of an offshore asset protection trust. I would tend to think of a domestic asset protection trust, in my understanding, for an asset that is physically inside of the United States and is physically located in one of those states, or if I'm domiciled in one of those states that has the legislation.

So here, I think the best solution would be for something like a personal residence. If you live in a state that doesn't provide good homestead exemptions, then I think a domestic asset protection trust is worth your considering for something like a personal residence. One of the most popular states to consider is for a domestic asset protection trust, if you are gonna try to use the strategy of establishing the trust in another state, but then you living not in that state, would be the state of Utah.

Utah protects assets, they had new legislation a few years ago, that they protect assets in the trust immediately against future creditors. So you can't have a creditor and then put assets in the trust, but assets put into the trust are protected immediately. Whereas some other assets, some other states don't begin protecting the assets against future creditors until they've been in the trust for a little while, a few years.

Even assets that are placed in the trust in Utah are protected against existing creditors after two years. So that can be helpful as well. In Utah, a lawyer can serve as the trustee. So it can be much less expensive for you to establish a third-party trustee, you just simply pay a flat fee to a lawyer, instead of paying a trust company a percentage of the trust assets.

And one of the downsides of domestic asset protection trusts is they're not bulletproof. For example, domestic asset protection trusts often don't protect assets against child support, alimony, taxes, or again, pre-existing lawsuits and things that are being claimed. One of the benefit of Utah is it clearly establishes there's no tax issues when selling your personal residence.

So when you put your personal residence into a domestic asset protection trust, that doesn't limit your ability to use the exemption from having of sale, exemption of capital gain from the sale of a personal residence when you put the money into, put the asset into the trust. Anything beyond that, I'll let the attorneys argue about.

I've read their arguments. Some people are very persuaded they're strong. Some people are persuaded that they're worthless. I don't know. But I think the best solution for the use of a domestic asset protection trust is for your personal residence, if you live in a state that has domestic asset protection trust legislation.

And the idea is if you live, so let's walk through kind of a quick category of strategies for things that you would pursue to protect your personal residence. The first very best is to live in a state that provides for you a large amount or hopefully unlimited amount of homestead exemption.

We talked extensively about that in the series on protecting your homestead or earlier in the series. So homestead exemption is thing number one. Thing number two, you would consider titling the asset as tenancy by the entirety. That's helpful as well. So, but that only helps you if you are married and you're living in the house with your spouse.

So first is homestead exemption. Second is tenancy by the entirety. With that, some states is perfectly fine. That's all you need. For example, Florida has unlimited homestead exemption and the default titling for real estate owned by couples is tenancy by the entirety. So you don't actually have to specially designate anything in Florida, it's default.

That's the designation, is tenancy by the entirety. From there, you move on to equity stripping. And so the concept is make sure that you don't have an asset that's not encumbered with a heavy mortgage or heavy liability. Don't have the equity in an unprotected asset. You, it would be foolish to live in a state that didn't provide homestead exemption and didn't provide a tenancy by the entirety protection and to own real estate that had a lot of equity in it, but not to have money in other accounts that are more protected from the claims of creditors.

So you wouldn't wanna have a paid off house and no money in a 401k. From the perspective of asset protection planning, you better off have a house with a heavy mortgage on it and all your money in a 401k. 'Cause the 401k is practically bulletproof from creditors except for IRS and legal claims, some of the super creditors.

But it's protected totally from the claims of all other creditors. But equity stripping is the next thing. Then domestic asset protection trust, I think, comes in to be as the next solution. So if you live in a state like Nevada, for example, Nevada has domestic asset protection trust legislation.

Nevada has a homestead exemption of $200,000. So they'll protect $200,000 of your interest in a property. So if you're buying a high-end residence, you buy a house for a million dollars and you make a big down payment, 10 or 20%, $200,000, but you put the asset into a domestic asset protection trust, your mortgage in the beginning won't pay down much.

So all of your equity in the house would be protected simply by the homestead exemption of $200,000. Now, Nevada domestic asset protection trust provides protection after two years. So then from then on, as the mortgage pays down the debt on the house, more and more equity is created. That equity is protected using the domestic asset protection trust legislation.

So that can be a useful way of protecting your house for a very long time. And if you have a very simple trust, just holds one asset, a personal residence, doesn't really have any income, then the cost for a trustee to manage it should be really quite simple. So if you wanna buy a million dollar house in Nevada, that would be a worthwhile thing to consider.

Other strategies just to kind of finish our list off on protecting your house. Then the next would be titling the house in a low-risk spouse's name for the reasons discussed. It's probably less effective than a domestic asset protection trust, but worth considering. And then of course, making sure that things are properly insured.

So those are some useful strategies for a domestic asset protection trust. Now there are other kinds of trusts, and in many ways, the other trusts are probably more powerful. The big name here would be an offshore asset protection trust. That's probably the sexiest sounding, and in many ways, an extremely effective way to protect assets.

An offshore asset protection trust is created with the goal of asset protection. How do you protect a big pot of money? It's an offshore asset protection trust. That's the goal for it. An offshore asset protection trust is an irrevocable, self-settled trust that lives offshore. And it has to live offshore to get the benefits of the foreign jurisdiction.

Frequently, as you move the assets offshore, the first thing is you start to bring in other governments involved, other sets of legislation. For the sake of brevity, I'm gonna read you two pages from the ABA Consumer Guide to Asset Protection on an offshore asset protection trust. They use foreign asset protection trusts, same thing.

A foreign asset protection trust is a trust that is set up in an offshore jurisdiction that has enabling trust legislation providing for substantial protection against creditors of the trust store. One of the greatest advantages of an FAPT is the fact that, by its very nature, any legal attack against the assets is transferred abroad to a different legal system.

A foreign trustee is necessary for the efficacy of the FAPT. As stated, the biggest advantage in utilizing the FAPT is that assets can be placed offshore beyond the jurisdiction of the US courts. Some of the advantages of foreign asset protection trusts are as follows. Most foreign jurisdictions do not recognize US judgments.

This may force a new trial on the merits in the foreign situs country. Some foreign situs jurisdictions require a much more difficult burden of proof for a creditor to challenge asset transfers to the foreign asset protection trust. Some jurisdictions have a statute of limitations for challenging asset transfers to an FAPT that begins to run on the date of transfer.

Fees and expenses in litigating in foreign jurisdictions are substantial, thereby serving as a strong deterrent to foreign litigation. The foreign asset protection trust minimizes the likelihood of a fraudulent conveyance charge because of the difficulty to a creditor of proceeding against the transferee trustee located in the foreign jurisdiction. The foreign asset protection trust provides attachment against assets placed in the offshore structure outside of US jurisdiction.

The foreign structure makes any type of an injunction against further disposition of assets extremely unlikely. The FAPT practically eliminates the possibility of the appointment of a receiver over the transferred assets. The foreign structure places the assets in a jurisdiction whose laws are favorable to debtors and hostile to creditors.

An offshore trust with at least one US beneficiary is a grantor trust for tax purposes. As a result, the FAPT is a pass-through entity to the grantor, similar to a revocable trust when it comes to tax reporting. Transfers to FAPT are normally incomplete gifts. Accordingly, the assets are generally included in the grantor's estate for estate tax purposes.

Most FAPTs provide for the office of a trust protector. The third-party protector has the power to remove the trustee and appoint a substitute trustee to change the situs of the trust. He or she can also veto any amendments or distributions made by the trust. Many times, the protector can be an entity or person not subject to the jurisdiction of a US court.

Anti-duress provisions make it very difficult for any court order to have any impact on trustee or creditor attacks designed to force distributions from the trust to the creditor. To recapitulate, the foreign asset protection trust places assets out of reach of US courts. Creditors are required to litigate in offshore jurisdictions, utilizing offshore domicile laws and justice systems rather than the US court process.

So my summary in short is the offshore asset protection trust is a powerful tool to use to hold assets that does bring substantial creditor protection. And I think the key here is first to recognize the downsides. The downsides are gonna be significant cost to create properly and to maintain.

Thus, we really should be talking about a significant amount of assets, right amount of assets to do, I don't know, ask an attorney, but for anything less than a million bucks, I gotta guess it's not really worth pursuing. So if you've got several millions of dollars that you're considering protecting, I think that it's very much worth having those assets in the offshore trust, but you will have to count the costs.

There are significant costs to maintaining the offshore trust. All of those benefits that you get by putting your trust in the Cook Islands or some other jurisdiction that's well-known for this type of planning, you get a lot of benefits for it, yes, but you also have to pay for it.

The whole industry is propped up by all of the fees that you're gonna be paying, so it's gotta be worth it. I think it's very important to make sure you work with a competent attorney that will structure it in the way that's likely to have the most success. Offshore asset protection trusts were trumpeted by the legal industry for many years as being bulletproof.

And then there've been a number of cases in which they were proven not to be bulletproof. Some people believe that they're not worth pursuing because they're not bulletproof. In my layman's reading, I would guess that they're probably still very, very strong, but they need to be structured properly and have the proper provisions brought in.

And I would add one more thing. You, if you are using an offshore asset protection trust, you need to think carefully about your own internationalization plan with regard to your assets and also with regard to your person. If you are physically located in the United States, you personally are vulnerable, no matter where your assets are in the world, you personally are vulnerable to a US-based judge.

And this is one of the big downsides, one of the big things that has happened with offshore asset protection trusts. The ultimate provision against you, if you have an offshore asset protection trust, is that you go into court and you say, "Listen, I can't make this trust give me assets because I'm under claim.

I don't have the ability to scourge assets from the trust. The trustee does that. I don't have the ability. I can't even get income from the trust because you're under threat of judgment." And so the trust may be paying your credit card bills. It may be paying your other expenses, but it can't give you income.

So you go in the court and you say, "I can't even have any income from the trust. I have no control over it. The trustees do it. I'm just a beneficiary of the trust and they won't give me any money." I'm simplifying, but that's basically the way the defense works.

So assets are offshore. US courts can't touch them. The trustees are offshore. The protector is offshore in another jurisdiction. US courts have no jurisdiction over the trustees or the protectors. Thus, it's completely offshore. And yes, they pay my Amex bill, but that's it. So you laugh in the judge's face.

And what the judge does is the judge says, "I don't believe you. I'm commanding you to go to prison until you actually go and pay this and pay it. And if you can't do it, if you can't pay it, you can't command your trustees to give you money in order to pay this claim that this legitimate creditor has against you.

You're just gonna sit in prison until you can figure it out." Well, sitting in prison often has a significant effect on many people. And they eventually say, "You know what? I'm gonna figure out some way to get my trustees to give me some money so that I can get out of prison." So if you're using an offshore asset protection trust, you need to give thought to the trust, but you also need to give thought to yourself.

Because if you are no longer physically present under the jurisdiction of the US judge, then now your creditor's claims against you are basically unenforceable. If your assets are offshore, and if you are offshore, then now you have a much stronger case. But I think many people who have offshore asset protection trusts have not given much thought to their own plan to be physically offshore in an extreme case, like I just described.

And I think that's a real mistake. The second thing you need to be aware of is that it's possible that if a judge doesn't believe that your offshore asset protection trust is, they don't believe it, they can then now start to lay claim against your other assets in the United States, even if those other assets are considered to be bulletproof.

So for example, you live in Florida, you have a, you live in Florida, you have a $5 million house in Florida, protected under the Homestead Exemption, you have $5 million in your 401(k) plan, and that's it. You don't have any other assets in the United States. You have a $5 million house and a $5 million in your 401(k) plan.

But you are the beneficiary of an offshore asset protection trust that has $20 million in it. And now somebody wins a lawsuit against you for $10 million. Well, the judge says, "I want $10 million out of your offshore asset protection trust for you to pay your creditors." You say, "Sorry, judge, I can't get the money out." Well, and you say, "And by the way, you can't do anything against me because I have this house and I have this 401(k)." Well, in that situation, it's possible that the creditor and the court may impose, let's call it a surcharge, on your other assets.

And even if those assets are exempt, the creditor can ask the court to surcharge the assets because they can't collect on the other assets because you've intentionally put those assets offshore outside of the creditor's reach. So the point is that if your assets are surcharged, now they're not available to you.

They're not available to you to fund your living expenses, et cetera. So the idea that you can just use the offshore trust to protect all the assets that aren't protected by your exempt assets in the United States may be a problem. Now, that's not to say it's not without major costs.

So we're talking here some extreme examples. And I'm already going much longer than I expected, but we could look at some of the cases. I've read a bunch of articles and dug into a bunch of the cases. But some of the cases where the Offshore Asset Protection Trust didn't fail, that's not the right word, but where it didn't work exactly as intended were against just major super creditors.

The most famous one is the Arlene Grant case, but against super creditors, and that case was the IRS, with just a hugely expensive and time-consuming lawsuit. So back to our levels of protection. Just because an Offshore Asset Protection Trust may not be ultimately bulletproof against the IRS doesn't mean that it's not potentially helpful for you.

You have the benefits of the privacy, you have the benefits of massive expense. You're just a very, very tough person to take a claim against. So again, don't let these things say, oh, because it can't have perfection, we're not gonna do anything. That's the wrong solution. Perfection is probably not possible.

But if you've given thought to what assets are inside the United States, what assets are outside of the United States, and if you give thought to solving the problem of the location of your physical body, then you can avoid some of these problems. So give thought to that if you are pursuing an Offshore Asset Protection Trust.

Now, I need to boogie on. Let's switch from trust. There are other types of trust. We can talk about land trusts. Land trusts can be very valuable from a personal privacy standpoint, especially for real estate. They're of limited value for asset protection, but they can be integrated with an LLC.

We'll skip that. That's only of interest to real estate investors, really. So let's talk about business structure, specifically here, corporations and limited liability companies. Corporations and limited liability companies are your friends. The most important reason they're your friends is the obvious thing, that is, business 101. They protect you against liability.

Yes, I've been speaking in this series fairly freely about how somebody sues you, but at the end of the day, there's gotta be a reason why somebody's gonna sue you. That reason may be much broader than it once was. You may be much more likely to be targeted because of your deep pockets, but there has to be a fundamental cause for the lawsuit.

There has to be a reason, an argument for the case. Much of the time, that argument will arise from some activity. And so if you're engaging in activities, business activities, et cetera, you can potentially limit your liability based upon running those activities through a proper business entity. Now, hear me loud and clear.

If your company is sued, it is extremely likely that the attorney bringing the lawsuit against you will name you personally as a defendant as well. So in any business structure that you do, you better make sure that you're properly managing it. You better make sure that you're doing your corporate record keeping, that you're having your annual meetings, that you're doing everything to maintain the corporate veil so that you don't automatically personally become liable.

But a corporation is absolutely going to provide you with protection, properly maintained, with protection from the liability that can be created by your business activities. And so a corporation or an LLC can protect the liability from flowing through to you. Now, that means that the business itself will have to stand good for the debts.

So if the business itself is found to be at fault in some problem, then you can expect that the business may go totally bankrupt, but at least it might not cover your other assets. So the business is important. In a business, think back to what I mentioned at the first part of the show, that you can use different business entities to segment out risk and liability and to segment out assets.

So you can own valuable assets in businesses that have very low liability. You can segregate your liability into businesses that have very low assets. You can do what I talked about. You can have an operations company and a holding company. You can even do things like making sure that you can have an employee, what's it called?

An employee leasing company, where you can set up a professional employment organization. And a professional employment organization is the organization that actually contracts with all of the employees. And then the professional employee organization leases the services of its employees to another company, because one of the biggest liability risks for the business is the actions of its employees.

And this liability is potentially massive. Some of it is on things that you would think are common sense, such as your employee does something ordinary in the line of business, but does something negligent and causes problems with it. But it's far more than that. One famous story that you read about in the asset protection books was where there was a giant stadium concessionaire who sold alcohol to a person who was already inebriated.

And that person drove home drunk, hit another vehicle, causing a major lifelong injury to the passengers of that other vehicle. So in the actual lawsuit that came about, who's the person that got the judgment against them? Was the drunk driver the person with the judgment? No, they didn't have any money.

Why would they get the judgment? The employee who sold the alcohol because they sold it to a person who was already drunk? No, no, no. They didn't have any money either. The concession company who employed the concessionaire? Yes. And in that case, the judgment was for $110 million. $110 million.

So it's possible that you could use some kind of employee, professional employment company to segregate the liability. Now, there are many other things that you could do, but it's too specific to individuals. The basic concept is that corporations, limited liability companies, limited partnerships, limited liability partnerships, and all of their brothers, these will help you to segregate risk.

But they can also go the other way. See, generally, when we're thinking about asset protection, you're thinking about protecting your assets from the company. If I own a company, and then I have risks that I'm subject to because of the activities of the company, I'm thinking about protecting my assets that I own personally.

Perhaps I own a portfolio of rental real estate assets, and I own a company. Why don't all my rental properties to be exposed to the claims of a creditor because of my company that has nothing to do with the rental properties? And so I run the company through a business entity.

But business entities, specifically, very importantly, LLCs, can also protect you the other way because now you can hold an asset inside of an LLC. And the LLC itself can actually now be protected from other risks. Most importantly, if the LLC, and here the LLC, and a limited partnership has a place, but you want some kind of entity that has what's called charging order protection.

This is the key, a charging order protection entity. There are a number of different kinds of entities that can have charging order protection, can be a charging order protected entity. Here are the ones that are protected by our charging order protected entity. Limited partnership, general partnerships, limited liability partnerships, limited liability, limited partnerships, and limited liability companies.

Although, remember, it's important with limited liability companies. In many jurisdictions, only a multi-member limited liability company can have charging order protection. Now, it's important that you recognize a corporation is not a charging order protected entity. If a corporate shareholder is attacked by creditors, the creditor may seize all of the shares of stock owned by that creditor, up to the amount of the debt, of course.

And then if the creditor can seize enough shares so that they can have control of, at least majority control of the company's voting shares, then the creditor can vote to liquidate the company and disgorge all the assets and then seize all of the assets of the company for the liquidation.

And this is one of the major things that makes a corporation a pretty poor asset protection vehicle. Let's use two simple examples to demonstrate the point. Let's say that I own $100,000 worth of shares in Coca-Cola Corporation, and I have a creditor. Well, my creditor can now, of course, come after me and can take that $100,000 worth of shares of Coca-Cola stock.

And then they can sell that stock on the open market and in that situation, they can use that $100,000 to satisfy their judgment against me. The fact that Coca-Cola is a corporation protects me as a shareholder from the actions of Coca-Cola, but it does not protect my value of assets from my personal creditors.

So corporations don't protect me and my assets against personal creditors. Now, if Coca-Cola, it's fairly simple and it should be obvious, the principle should be obvious. But if I have Joshua's Land Clearing Company, and Joshua's Land Clearing Company doesn't have any assets except all this equipment, and Joshua owns shares of the stock and I just own it in a corporation, well, my creditor can seize all of the shares of stock of my corporation just like they can seize the shares of stock of my Coca-Cola stock, which is also a corporation.

And if they can seize value up to at least 50% of the voting share so that they can control my company, now they control the company, they can hold a board of directors meeting, they can vote to liquidate the company to sell all the assets on the open market and they could take my bulldozers and my semi trucks, they can sell them all, turn them into cash and use that cash to satisfy the judgment that they have gotten against me.

So that is the problem with a corporation for the purposes of asset protection. So what's the solution? Well, the solution is what's called the charging order. And the charging order is built into the law that most states have adopted, the various sample laws, the recommended laws that most states have established, which governs and limits a creditor of a company's partner or owner, limits the ability of a creditor to access assets that are in excess of company distributions to the individual.

And so generally the only remedy that's available to a creditor is the creditor can attach things that are actually distributed to me. And so think about this, let's say that you and I are in a partnership together, limited partnership. If we're doing business together and I have creditors that can come and can destroy the business and force the business to be closed and all the assets to be disgorged and sold at a foreclosure auction or sold at auction, whatever, that could really harm you.

And so to protect you, what my creditor is going to be limited to is a charging order. And they'll only be able to access to actual distributions. So you and I can continue in business together and our limited partnership sends out $100,000 of income to you and sends out $100,000 of income to me, that $100,000 is going to be available to my creditors.

Now what's even more important though is a charging order holder cannot control the entity. And thus they cannot control when distributions are actually made. So if the entity itself never makes a distribution to the partner that owes money, then no money is available here to the creditor. Now it would be not a good idea whatsoever to give a distribution to every partner except the partner that has a creditor.

I think that would be thrown out by a judge, which is not a good situation. But it does provide a very important tool that we can use for asset protection. So by using a charging order protection entity, we can limit the ability of a creditor to attack the assets that are held in that charging order protected entity.

But this is why it's so important that whenever you establish an entity, that you make sure that there are multiple people involved. Because in the same way that you can have a court pierce the corporate veil and say, "No, we're going to allow the owner's assets "to be available to the claims of the company," if the company is not structured properly, you can have a reverse piercing of the corporate veil or reverse piercing of the entity.

So in this case, if I own an LLC, and it's a single member LLC, and I own the asset and I own a business inside of that, but I now have a creditor that's available to me, let's say I have an LLC, it owns an investment property, but I have a creditor now that's a personal creditor, and the judge says, "You need to pay this debt," and then they look at this LLC that I own, and I say, "Look, it's an LLC, "you can't do anything with it." Well, they look down at it and say, "No, you're the only beneficiary of this LLC, "so we're just going to give the control of the LLC "over to the creditor, the real estate's gonna be sold, "and then that sale of assets "is gonna be used to satisfy the debt." So you gotta make sure that there are multiple people involved and so that you properly make sure that you wouldn't be the only one harmed if the assets were sold out of the entity.

Now, you can see here why we're getting to the end of our Asset Protection for Marimortals series. You're gonna need some advice, because only a handful of states have charging order protection available for LLCs. Most states have it available through a limited partnership, so depending on what you're trying to accomplish, you can do this, you can create a family limited partnership, you can create a family limited liability company, and you can use these entities to protect what you're doing.

And one of the most valuable things about LLCs especially is they're so flexible in terms of the assets that they can own. So you can start to layer these things together, and you can mix and match almost anything. You gotta be careful with S-corporations. An S-corporation can own an LLC, and it's technically possible, if you have a single-member LLC, it's sometimes possible that a single-member LLC could own shares of an S-corporation, but you get into problems if you have multi-member LLC.

So you can have an, your S, an S-corporation can own an LLC. But if you just simply talk about a standard C-corporation, a corporation can issue a corporate stock, and an LLC can own shares of corporate stock, and a corporation can own an LLC. So you can mix and match these things together to protect what you're trying to do.

So let's say that you have a corporation, what should you do if you have a corporation and you're worried about protecting the corporate stock that you own? Well, bringing together some of these things that we talked about. Married couples can make sure that the corporate stock is owned by the less vulnerable spouse.

That could be a good solution. It's tax neutral, it's not perfect, especially if it's a transfer. Could be subject to a fraudulent transfer ruling, but that's possible. You can transfer the shares of corporate stock, as long as it's not an S-corporation, S can be tricky, it can be done in some permutations, but so we're sticking with C-corp.

You can transfer the shares of corporate stock to an LLC or to a limited partnership. And of course that LLC or limited partnership could be domiciled in the US, it could be domiciled offshore. As a capital contribution, that's a tax-free event. Now you can protect that stock because it can't be sold, 'cause now it can't be seized by a creditor, and it's now an asset of the LLC.

In addition, you can stay on as the manager of the LLC or the limited partnership, so you can then control your corporate stock because you're the manager of the LLC, even if you're not receiving distributions from the LLC. It's possible that you can also remain a director or an officer of the corporation.

So just because your stock is held by the LLC of the manager, as long as you follow things properly with regard to the tax planning there, you can still control the underlying corporation. You can move the corporate stock into an irrevocable trust. That can be set up for your children, other family members, other beneficiaries, a charitable trust can work.

You can title your shares as tenancy by the entirety. So if you are in a state that allows non-real property to be protected by tenancy by the entirety, now that can provide significant benefits as well. So there are other benefits as well, where you can assess the share, issue proxies, or dilute your ownership, and some other things as well.

But LLCs give you tremendous flexibility. Let me finish up with regard to entities. I've talked about a number. I just want to also point out to you that you can use some of those entities previously discussed such as IRAs to hold assets as well. So you can have a self-directed IRA, you can have a self-directed 401(k), you can have a self-directed ESA, educational savings account, you can have a self-directed HSA, health savings account.

You can create a checkbook LLC, you can do your investing through those entities, and you can maintain the asset protection benefits of those asset entities, also the tax benefits of those entities, and still use it to own and control your investments. So there are a lot of benefits, things that you could pursue there with your IRA.

With all of these different strategies, we've discussed a long range, and I guess I just should finish up with nominees. With nominees, other people that you trust just simply owning certain assets, doing certain things for you, some of that activity could be illegal if you did it wrongly, and you did not discuss it properly, and disclose things properly, or it could be completely legal and provide benefits for you of privacy and other things as well.

Your risk, of course, with working with a nominee, somebody that you are asking to do certain things for you under their name, is of course, they're the owner. So you have no legal rights. But in a situation where you have strong relationship connections, that if you trust the relationship and trust the person, then working with a nominee can be helpful as well.

With all of these options that we've talked about, you can look at almost any asset, and you can find an intelligent way to hold that asset. In almost every circumstance, maybe that's too strong, it's very hard for me to come up with an asset that should be owned by a person individually just in their name.

The best asset for this type of thing is an asset that doesn't have any kind of ownership claim except possession. So when we talked about physical property, one of the major benefits of physical property is there's no titling to it. There's no titling to gold coins. There's no titling to cash.

There's no titling to a valuable, you know, a Stradivarius violin. There's no titling to a valuable gun collection. These are just things that possession simply means ownership. And so with that, you have significant, massive levels of privacy. And as long as those assets are physically secured and are physically diversified, you have tremendous privacy.

That privacy buys you major benefits on the front end. It makes you a smaller target. It makes you harder to locate. It makes you less likely to be sued. You don't have, with that ownership structure, you don't have legal protection when you actually have to make a statement of assets for your creditor if you lose a lawsuit.

That's unlikely. In all these strategies, that's a pretty good one. So you can own assets personally in that situation of just because they're, and you get benefits from the privacy. Now with almost everything else, anything that has a record is going to be exposed to the public view. And so in this situation, you now have a space where privacy is extremely important.

And that privacy can be the only benefit that comes from an entity itself. With, and the specific strategy would vary based upon the asset. Let's say that you purchase an RV. With an RV, there's no reason whatsoever other than perfect, I shouldn't say no reason. The only reason that I can think of to own something like an RV personally would be just the simplicity and the total elimination of cost.

But if you go and buy something like an RV, here I'm thinking of a trailer is the simplest thing because it doesn't even have to be insured. Although you can insure something that's owned by it, it's not a big deal. You can do it with cars, do it with anything.

But you go and you buy an RV. Well, put the RV into an LLC. Establish an anonymous LLC in one of the states that provides for such things. Cost you a few hundred bucks to establish. And you have a director that runs the LLC. You can own the RV there.

You can insure it in the LLC. It's not a problem whatsoever. And now you've disconnected yourself from the ownership of that RV. Now in this situation, LLC is disregarded. No tax situations whatsoever. Plus you're gonna lose money on it in any way. But you at least get the benefits of privacy by establishing an entity.

So you just should do the same thing with your cars, with your boats, with your RVs, et cetera. And even if those assets do not give you asset protection, the privacy in and of itself gives you a measure of protection. Now you can step it up another step. You can hold those LLC member units within some other entity.

Could be a trust. You could hold them. You could just simply hold them with other people to get charging order protection with them if your state provides that for LLC. The point is the privacy is one thing. And then you can add in the actual legal protection as well.

With things like your house, you can fairly easily use a common thing of a revocable trust. You can set it up with just a personal revocable trust. And now you can start to gain potentially some benefits for the privacy of the ownership of the house, depending on what you call that trust.

But yet you can still, depending on the laws of your state, you can still benefit from your homestead exemption. You can still get your tenancy by the entireties. You can still benefit from all of those things, even though you provide some shield with a personal trust. As long as you don't have income, you have a fairly easy time of titling almost any of these assets and maintaining privacy as a major consideration.

The thing that always breaks you is when you start to have income, because now you'll very quickly lose privacy. When you start opening bank accounts, when you start, insurance has a place, although that's a modest privacy risk. But anytime you start having income, then you start to have more significant, you lose privacy.

It's very hard to have income and maintain privacy. Really the only way to do it completely, I'm not gonna tell you, it's too hard. So with assets that aren't income producing, a few hundred dollars, you can hold most of those assets at least privacy, privately. And now you start to look like a smaller fish.

If you drive a company car, your boats and such are owned in anonymous LLCs, your house is owned in a trust, you just, you start to come down underneath the radar. Then you start to bring in the more robust asset protection for your business assets and your trust that you use, whether it's domestic asset protection trust, whether it's to hold LLC units for rental properties.

I'm trying, without trying to show you exactly how every asset should be owned, 'cause how could I ever do that? Just trying to stimulate your thinking and to show you how all of these things can come together. Now, this is complex because we're thinking about asset protection, but we're also thinking about taxes, but we're also thinking about estate planning.

And there are so many moving parts, it can be very, very complex. But here's my summary statement. For people with assets, it's hard for me to think why any asset should be titled in your personal name, other than something that's trivial or a minor asset that's for the sake of convenience.

There is a spectrum of cost and complexity. And I don't think that everybody should have the most expensive, most complex situation, but you can establish things so that they fairly simply start to grow with you. And once you get used to creating LLCs or having them created for you, once you get used to managing the corporate formalities of an entity, then you can start to figure out what your personal level of comfort is for the administrative complexity, and you can systematically protect your assets step by step.

There are probably solutions that are, in theory, legally perfect. But even if you don't arrive at legally perfect, you'll gain major benefits by just being a tougher person to sue. You'll gain major benefits by being thornier, pricklier, harder to pin down, harder to find, harder to figure out what you own, and that in and of itself will have value.

I would encourage you, dig into some of this stuff. Get some asset protection books. Just start reading about it. Think about your own assets. It's probably fairly simple for most people. For most people, your biggest asset that's exposed is probably going to be your house and the equity in your house.

So we talked about that in this show. Homestead exemption, tenancy by the entireties, if available in your state. Homestead exemption, based on the laws of your state. Strip the equity out, keep mortgage on your house. Mortgage money on your house is probably the cheapest money that's available, and it does a good job.

Now there are fancy ways to equity strip your assets, but a mortgage on your house is probably simple enough. Consider a domestic asset protection trust, especially if you're in one of the states that allows it. Consider titling the house into the name of a low-risk spouse, and then make sure that you have umbrella insurance on your house.

So there's a fairly simple action plan for your house. Your 401ks, IRAs, et cetera, those have built-in protection. So those things are well covered. What about for rental properties? Oh, I think you need to have a combination of LLCs. Make sure that you have some LLCs that have charging order protection on them, and then you would consider how those interact with possibly a land trust.

But I think LLCs are your simple low-hanging fruit. What about your investment accounts? Well, investment accounts, you could possibly own investment accounts in a domestic asset protection trust. You could put them into an LLC that has charging order protection. You could move them offshore into an offshore asset protection trust if offshoring is part of your plan.

Beyond that, it just grows from there, but it's the same basic tools figured out how to be applied to your situation. Unless you get on top of asset titling, I don't think that, well, I think it's a major solution that you need to dig into. Hope this wasn't too deep.

I hope it was useful to you as I go. I will give you a quick ad for my course on how to survive and thrive during the coming economic crisis. And in that course, it's funny, one of the reasons I was talking about, much of that course was focused on international relocation during a time of financial crisis, not exclusively.

And in fact, I give major warnings against international relocation. But I did an extensive segment in that particular course on why international relocation solves some significant problems for you with regard to creditors. And I even have alluded to that in this particular course. It's an extensive series on your removing yourself from your home government jurisdiction, probably the United States or wherever it is, because that can solve many of your major creditor problems.

If you are exposed to the claims of creditors, and those claims are significant, et cetera, with your offshore asset protection planning, your offshore asset protection trust, you should have serious consideration given to the offshoring of your person to get your person out of the way of legal jeopardy. If you're interested in a lot of ideas and discussion on that, some pretty cool stuff that's very doable, come on by radicalpersonalfinance.com/store and sign up for the "How to Survive and Thrive During the Coming Economic Crisis." In that course, we talk about crossing international borders.

We talk about forms of identification. We talk about crossing international borders surreptitiously, doing it quietly without necessarily passing immediately through immigration control. We talk about second passports. We talk about residencies, so that if you needed a place to go that was different from where you live, what would you do right now if you needed to leave the United States?

And all of a sudden, you're potentially subjected to ruinous claims. Let's assume that the claims of your creditors are totally immoral. Thus, you are morally justified in avoiding them. Where would you go? How would you get there? And how would you make sure that you had money to spend if things were, how would you make sure you had money to spend?

We don't often talk about running away from creditors as one of the reasons why you would have to bug out and get out of the United States. But yet, it's an entirely valid risk. And if you go around the world and you talk to many people who have left, you'll find that escaping from creditors was often one of the major situations.

And I wanna be very clear. I try to do my best to be morally clear. I always advocate for paying debts. There are debts that are not moral, that legal but not moral. But even if a debt is both moral and legal, sometimes in that situation, you still have to get out.

What would you do if the United States were in a financial crisis and you couldn't make it there and thus you can't earn enough money to support yourself and pay your debts and you need to get out? Well, frankly, if I lived in Des Moines, Iowa and I had a major financial problem, I were just totally dying, I couldn't make it anymore, I would probably leave.

I'd move to Chiang Mai, Thailand and I'd start some new business online or start some new service where I can live on less than $1,000 a month and be in a tropical beach and be around a community of tons of expats, et cetera. So I'd go live in Chiang Mai, Thailand, live on the cheap and start a new business.

Then I'd save the money from that and when I had the money, I would call up my creditors and I would say, "Listen, I got some money. "I'd like to come and pay you off and do it." So you have to be competent with all of the things that you can do and the tools and techniques so that you can do what is morally right in that situation.

Hope you've enjoyed the show. If you're interested in more details on it, come to radicalpersonalfinance.com/store. That's how I pay my bills. So if that's of any interest, come on by and give it a try. Thank you. - The LA Kings Holiday Pack is back. The perfect gift for the hockey fan in your life.

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