In this depressed economy, every dollar you earn and every asset you own is at risk. Vultures in the form of creditors and litigants are salivating at the thought of a successful individual having their assets unprotected. If he is making money, he currently has a target on his back. The only way to protect what he has earned from those who are trying to take it from him is to establish a comprehensive asset protection plan. Thirty percent of potential lawsuits are prevented by the mere presence of an asset protection plan. There are three techniques to protect your assets. Anyone can use one or all of these techniques.
1. The first technique is to remove your name from ownership of your assets, but not from control of your assets. You want to be rich but look poor.
One entity to which you can transfer your assets to accomplish this goal is a limited liability company, or LLC. A creditor cannot attach a debt to an LLC’s membership interest. Therefore, the shares you own in any LLC are protected from any creditor bonds. The creditor or judgment holder is limited to having a collection order against any distribution made from the LLC. They may not touch any of the assets of the LLC, nor may they take any money you pay yourself as wages (without an order allowing a wage garnishment) or any assets bought or sold on behalf of the LLC. As long as you avoid distributions from the LLC, the creditor will have no ability to collect at all.
Another entity that provides protection for your assets is the irrevocable trust. You can transfer your assets into an irrevocable trust and prevent any debt you owe from being levied against those assets since, technically, you are not the owner. You can name a spouse, child, or friend as trustee and retain Current control without having any legal ownership or control. An added benefit of the irrevocable trust is that it does not need to be listed on an asset sheet since it is no longer one of your assets. However, all of an LLC’s own shares must be listed on an asset sheet, even if those shares are protected.
2. The second technique is to convert your assets into vehicles that are already exempt from creditors. Real estate, annuities, IRAs, pension plans, and life insurance policies are the most common creditor-exempt entities.
For new or existing Florida residents, by far the most convenient vehicle to protect your assets is the Florida Homestead statute. Any vested interest in or value added to a person’s homestead property is protected by Florida’s homestead exemption. The only creditors who can attach a lien on your family property are those creditors who have liens arising from your property. The three most common such liens are mortgage liens, federal tax liens, and mechanical liens (money owed to someone you hired to work on your property). Association links are also of this type.
The cash surrender value of an insurance policy insuring the life of a Florida resident is also not subject to creditor claims. Also note that the life insurance death benefit is protected against claims as long as the death benefit passes to a beneficiary and not to the decedent’s estate.
The proceeds of an annuity contract issued to a Florida resident are not subject to creditor claims. The operation of this exemption is best illustrated in Goldenberg v. Sawczak, 791 So.2d 1978 (Fla. 2001). Dr. Goldenberg put several million dollars into an annuity, began practicing medicine without insurance, and then committed gross negligence a few years later.
The Eleventh Circuit certified the question of whether the surrender value of the annuity is exempt, rather than just the “proceeds,” as written in the text of the statute, Section 222.14, Florida Statutes. The Florida Supreme Court, in a unanimous decision, held that the surrender value of an annuity contract is exempt if it is subject to a contractual surrender penalty, thus protecting Dr. Goldenberg’s greatest asset from the victim of malpractice. .
3. The third technique is to make all of your current assets less attractive to those who might be looking to take them away from you.
We do this through a process called equity stripping. Placing liens on assets that are currently unencumbered or have some equity makes the asset look more like a liability. You don’t actually have to go to a bank and take out a loan. Equity removal does not have to cost you additional money. You can have one of your out-of-state LLCs write a note for more than your property is worth. When a creditor or litigant examines your assets, they will see property that is encumbered by a loan that is worth more than the asset itself. The property will be “underwater” and undesirable to any potential asset vulture.
Asset protection is a necessity in this age of “cash for nothing” mentality. Fifty million lawsuits are filed each year. Each of us will be sued 5 times during our lifetime. Will you ignore your lawsuit without worry, or will one of those lawsuits cripple you and your family financially permanently? The time to plan is now.
Warning: You should always consult a professional when establishing and enacting an asset protection plan. Asset protection attorneys are trained specialists who can ensure that a plan that protects is put in place without the risk of being deemed fraudulent.