West Palm Beach Asset Protection Lawyer
Why Think About Protecting Your Assets?
All is good. You have your health, a beautiful family and a job that enables you to keep your family happy. You have also been able to build a nice nest egg for your families future.
And then it happens…
As you are leaving for work a lawsuit is served upon you. You may be totally innocent but does a claim’s legitimacy give you any less reason to protect yourself? What you need to ask yourself is, “Can I afford to potentially lose all of my assets?” Financial self-defense is a necessity regardless of the legitimacy of the claim.
Any lawsuit can create stress and uneasiness; however a major lawsuit can disrupt social relationships, cloud thoughts, dampen enthusiasm for the future, and always creates a nagging sense of insecurity.
You can not anticipate a lawsuit only when you do something wrong – you can be sued when you do everything right. The Firm’s asset protection planning services include implementing domestic and/or offshore strategies which include the formation of trusts, corporations, limited partnerships, limited liability companies and other planning techniques. Our experienced lawyers will put together a comprehensive plan that will protect your wealth from unforeseen lawsuits, judgment creditors, or divorce. We will further evaluate your estate plan and integrate it into your asset protection plan.
Our goal is to create a sound estate, wherein creditors are discouraged from suing you and at the same time allowing you to comfortably increase your wealth. Contact our experienced West Palm Beach asset protection lawyers today, we can help.
Asset Protection FAQs
I never heard of asset protection, is it legal?
Asset protection is a legal solution that uses your state (United States) and foreign law (outside the United States) to protect what you possess from lawsuits and other claims. This can include your cash, your personal belongings, investment properties, homestead and even your business. Unfortunately, many people dismiss asset protection as a viable course of action because for whatever reason they have been told that “asset protection” is used only by people who want to “hide” their assets. Even lawyers at one time questioned if asset protection planning was ethical. Not any more. When done correctly, asset protection is an invaluable tool.
Asset protection as stated above follows the law and is not about evading taxes, laundering money or defrauding a creditor. As attorneys we have a duty when preparing a plan not to rely upon secrecy or counsel clients to fraudulently conceal assets. The biggest problem in protecting assets is that many people just do not know that they are able to take action to protect their assets. It is only after a creditor files a lawsuit, receives a judgment and takes a person’s assets that one seeks protection.
Do I need to protect every asset I own?
In preparing an asset protection plan the client needs to provide a complete listing of all of his or her assets. The list should include all assets currently owned and any assets that the client expects to receive in the future such as an inheritance. In preparing a strategy we evaluate each asset. We further take into consideration a person’s goals and risk tolerance. Some of the questions we ask are: How much is the asset worth? Is there any equity in your real property? Do you intend to keep the asset? Once we determine which assets you want to keep and which assets are exposed to creditor attack, we begin to build a plan to protect these assets.
Prior to completing an asset protection plan we further look to any assets that may have been recently gifted away. This is because in some circumstances a judgment creditor may be able to undue such a gift and therefore we may need to restructure this transfer to protect the asset.
Why would I need an asset protection plan?
Asset protection planning can create a fortress around your assets to stop attacks from judgment creditors. It is important to note that creating a plan that is 100% judgment proof is very difficult. Although, if a plan is implemented early and done correctly, one can substantially increase their creditor protection and place a majority of their assets beyond the reach of their creditors.
Notwithstanding the above, many people feel that buying insurance is all that is needed to protect their assets. Insurance is a good first step, but it is not the complete answer. There is always the chance that an insurance company can deny a claim. So buy insurance in an amount you can afford and also implement an effective asset protection plan to achieve your goals. This combined method will allow you when necessary to squeeze a judgment creditor to accept your insurance policy limits as its only chance for recovery.
Further, if you are sued for recovery of a debt, a good asset protection plan will increase your leverage when negotiating a settlement. The reason being, that the creditor will see that any chance for recovery is unlikely. Also, prior to filing a lawsuit, attorneys will conduct a background search to see if you have any assets and how the assets are owned. If done correctly, an asset protection plan will make it very difficult and expensive to attack your assets. As such, it will discourage an attorney from filing a lawsuit. On the other hand, there are attorneys who feel that the sole event of filing a lawsuit will create a settlement. In this case the success of an asset protection plan will not be measured by if you were forced to settle, but whether or not you lost major assets.
Additionally, a good asset protection plan when integrated with estate planning and other financial planning goals can help you save estate and income taxes. When necessary, we will work with other attorneys specializing in estate planning to maximize your goals.
Why do some people feel that asset protection is unnecessary?
One of the most common reasons I hear is that “I have no debt, who will sue me?” The amount of debt one has should not be a factor. One should only look to their exposed assets. In today’s world there are too many unforeseeable reasons one gets sued today. You can have zero debt but one day someone may slip and fall in front of your house, you may be in an accident or even accused of some wrongdoing. You have insurance but the coverage is not enough or there is no coverage. What now? No matter how careful you are, there is only so much you can due to reduce the odds of being sued. It’s not just the rich who get sued. Anyone walking this earth is a potential lawsuit target.
Further, some people feel that by buying insurance all their assets will be protected. Unfortunately, even when a claim is insured, your insurance policy may not cover or fully cover the claim. For instance, a $300,000.00 liability policy will not relieve you of responsibility when you are sued for $1,000,000.00. Also, have you ever read your insurance policy? There are many exclusions within the policy that an insurance company can rely on to deny coverage. Thus, insurance should only be used in conjunction with a effective asset protection plan.
Another reason revolves around the cost and the amount of assets one has. The cost is all relative to what you are trying to achieve. Just as you pay your insurance premiums for piece of mind and security, so you pay for a solid asset protection plan. Many of the strategies used to protect your assets are not that expensive. As to the people who say that they do not have enough assets to protect, look again. There have been clients who stated that all they have is $30,000.00 in the bank. If they fail to protect this asset and they are ultimately sued resulting in a creditor receiving a judgment, say goodbye to the $30,000.00 in the bank. Losing that money would be devastating. It is crucial to protect any asset that you have which is important to you.
Are there any financial products that will provide asset protection?
This will depend on what state you live in. In Florida, the cash value in life insurance policies along with annuities are prohibited from creditor attack. Therefore, when implementing an asset protection plan one should consider integrating financial products into such a plan. The only argument a creditor may have to allow attachment is that the financial product was purchased to hinder, delay or defraud the creditor.
If I establish an asset protection plan do I also need to have an estate plan?
Absolutely yes. We always integrate asset protection with estate planning. The two should be coordinated to compliment each other to complete your goals of not only protecting your assets while you are alive but also protecting your assets when you die. It is amazing how many people have come to us for asset protection and fail to have an estate plan. Further, if a client does have an estate plan, it is often outdated.
Can I still create an asset protection plan if a lawsuit is filed against me?
Yes, but your options may be limited and you must be aware of the fraudulent transfer laws. This law basically states that if you give an asset away and do not receive equivalent value for the asset then a judgment creditor can argue that the transfer was made to hinder, delay or defraud the creditor. As such, the fraudulent transfer laws, in some circumstances, allow a judgment creditor to request a court to undue the transfers previously made by a debtor. Since the debtor will once again hold title to the transferred asset, a judgment creditor can now request the judge to direct the debtor to hand over the asset. Thus, a fraudulent transfer can take away the effectiveness of a good asset protection plan.
In order to avoid a fraudulent transfer, it is important to plan prior to having any legal problems. That is why the most powerful asset protection plans are established prior to any creditor threats rather than created as a response to a creditor threat.
Can a judgment creditor take my home?
A home which is your primary residence is commonly referred to as “homestead” and is protected in many states. The only question is if protection is allowed, to what degree? Each state differs in the monetary amount allowed. In Florida you have unlimited protection. This unique protection was granted to Florida residents by the Florida Constitution. Thus, any debts that were incurred during the time the property was being claimed as homestead, no judgment creditor other than your mortgages and certain tax liens can force a sale of your home. Even if a judgment creditor records a lien against your home, this will not impede your ability to sell your home in the future. To accomplish this you should seek a qualified attorney’s advice.
Unfortunately, if you were to file for bankruptcy or were involuntarily placed into bankruptcy, the laws change. In 2005 Congress amended the Bankruptcy code. One such amendment affected the homestead. The law stated that in order to claim the unlimited exemption that Florida allows, a person would have to have acquired their home for more than 1,215 days prior to filing bankruptcy. If not the amount of equity allowed protection would be limited. This could result in the loss of your home. In order to determine if your home is safe from creditor attack it is important to speak with a bankruptcy attorney.
Are my creditors able to get at my retirement account to pay off their account?
Again this varies from state to state. Some states place a maximum dollar figure on the amount afforded protection. In Florida retirement plans are not only a good way to defer taxation but also provides great protection from potential creditors. Florida Statute 222.21 (2)(a) provides:
Except as provided in paragraph (d), any money or other assets payable to an owner, a participant, or a beneficiary from, or any interest of any owner, participant, or beneficiary in, a fund or account is exempt from all claims of creditors of the owner, beneficiary, or participant if the fund or account is:
Maintained in accordance with a master plan, volume submitter plan, prototype plan, or any other plan or governing instrument that has been preapproved by the Internal Revenue Service as exempt from taxation under s. 401(a), (qualified pension, profit sharing and stock bonus plans) s. 403(a), s. 403(b), (qualified annuities) s. 408, (individual retirement accounts) s. 408A, (Roth individual retirement accounts) s. 409, (employee stock ownership) s. 414, s. 457(b) (deferred compensation Plan), or s. 501(a) of the Internal Revenue Code of 1986, as amended, unless it has been subsequently determined that the plan or governing instrument is not exempt from taxation in a proceeding that has become final and nonappealable;
As you can see the Florida Statutes protect all tax plans that are tax qualified under specific Internal Revenue Service code sections as stated above. However, even if your state does not provide the appropriate protection there are still other options to protect your retirement. Our firm would asses your situation and determine the best course of action to properly protect your retirement. This could result in a number of strategies being utilized, such as terminating the retirement account and placing it in a protected entity or financial product.
Does it really matter how property is titled?
Yes. Title as it relates to property refers to the type of legal rights you have in the property as well as the rights a potential creditor has allowing the creditor to take the property to satisfy its debt. A few of the most common types of ownership is fee simple (own property individually), tenancy in common (own the property with others), joint tenancy with right of survivorship (own property with another and at the death of an owner the full rights to the property belong to the survivor), tenants-by-the-entirety (see below) and community property (only recognized in nine states relating to property of a marriage and gives each spouse a one-half interest in the property).
The only type of ownership that creates any useful type of creditor protection is tenants-by-the-entirety. It is only available in some states and can only be where husbands and wives own property together. Even in the states that recognize tenants-by-the-entirety, they have varying levels of creditor protection. The strongest protection shields property in its entirety when only one spouse is sued. The debt can only be that of the spouse being sued. If the debt is joint, with the other spouse, there is no protection and the creditor can collect against the property to satisfy its lien. Tenancy-by-the-entirety laws are not foolproof even where the law is broadly protective. If your spouse dies while you have a judgment creditor the tenants-by-the-entirety protection can no longer be asserted. The property would be owned fee simple by the surviving spouse and be subject to creditor attack.
Is there anything I can do to protect myself if I own a business?
Incorporate. Plain and simple. When starting a business it is important to keep personal and business assets separate. This is because the likelihood of a business being sued is potentially higher than personally being sued. Unfortunately, business owners often start their companies as a sole proprietorship or general partnership. Consequently, these owners can be held personally liable for the debts of the business. Thus, by incorporating your business you can insulate your personal assets from the debts of the business.
A business must also plan for potential lawsuits. If a corporation is sued, its assets are also at risk. Therefore, a well structured asset protection plan must be formed for the corporation. One such strategy may be to isolate various liabilities by forming multiple corporations under one umbrella corporation. Whatever the needs of the specific company are, we would develop a sensible asset protection plan to achieve the ultimate protection.
Does asset protection serve any other purpose than to protect my assets?
Yes. It helps avoid liability. As seen above we live in a litigious society. As we live our lives we are constantly exposed to potential liability. Every time we get in a car, open a business, buy a piece of property, etc. it creates liability. Asset protection plans must do more than protect your assets. A solid plan must insulate you and your personal assets from your daily routines.
What asset protection can a limited partnership provide?
First you must ask, “What is a limited partnership?” A Limited Partnership is a partnership that is formed under state law. The structure of the limited partnership consists of general partners and limited partners. A general partner controls the partnership’s investments, distributions, and other business decisions and has personal liability for all partnership debts and obligations. On the other hand, a limited partner has no management control or personal liability. The limited partner only has an investment interest in the partnership. An individual can be both a general partner and a limited partner in a limited partnership.
In asset protection planning such a structure is often called a family limited partnership (“FLP”). There is no official distinction but is commonly used when families create a limited partnership. The purpose is to change ownership of family assets in order to maximize the protection of the assets from potential creditor attack. In a family partnership, one or both spouses usually serves as the general partner, and the spouses, together with their children, are typically limited partners. In this structure, the spouses can reduce their estate by gifting their interest in the partnership to their children over time. This structure also creates estate planning benefits as the IRS often will discount the taxable value of limited partnership interest for gift and estate taxation. Also, limited partnerships are tax neutral allowing you to move assets into and out of your limited partnership without tax consequences. Further, all earnings pass through the limited partnership and are paid by its partners.
There are many ways to set up a limited partnership. The needs and goals of the client must be evaluated to achieve the best results. Due to the personal liability of a general partner, many limited partnerships use corporate general partners. A general partner may shield themselves from individual liability by setting up a limited liability company to serve as the general partner. This would result in the general partner being protected from personal liability for partnership acts or omissions.
Now that you understand the structure of a limited partnership the next question to ask is “How does a limited partnership protect my assets from creditors?” A creditor of a limited partner may apply for a “charging order” against the limited partnership interest. A “charging order” only gives the creditor the right to seize the profit distributions due the partner, not the partnership interests. If the general partner decides to not make any distributions to limited partners, then the creditor cannot collect. Further, a creditor has no rights to inspect the books and records of the partnership. In a Internal Revenue Ruling it suggests that where a creditor obtains a charging lien on a limited partnership interest, and the general partner fails to make income distributions, the creditor would be responsible to pay the tax on the allocated income. Imagine a creditor being faced with a tax liability while collecting zero. Therefore many creditors do not pursue a judgment against a debtor’s interest in a limited partnership. If a creditor does pursue a charging lien, I would expect to see a settlement for far less than the liability owed.
When considering a limited partnership, it may be necessary to set up more than one. This can be done by separating safe (low risk) assets from liability-producing (high risk) assets. For example, low risk assets are cash, stocks, bonds, and mutual funds as these assets do not produce risk. High risk assets could be cars, boats or motorcycles as these assets do produce risk. If one limited partnership encounters financial or legal problems, the assets in the other limited partnerships will not be jeopardized. Although, when setting up multiple limited partnerships one should always look to the cost factor versus the added protection being provided.
How does a limited liability company protect my assets?
The Limited Liability Company (LLC) is a fairly new concept. In 1977, Wyoming enacted a law that would allow businesses to be formed having the limited liability advantage of a corporation and have favorable income taxation of a partnership. As such, the LLC itself would not incur any taxes as the profits would pass to its member. Notwithstanding this, an election could be made to treat an LLC as a C corporation resulting in double taxation. Over the following ten years states throughout the nation began to enact legislation regarding limited liability companies.
The other advantage is how an LLC shields liability to its owners. An LLC is made up of members who have no personal liability for the debts of the LLC. Members can participate in the management and control of the company without the fear of placing their personal assets at risk. The LLC could also hire an outside manger. The LLC sets out its rules and procedures through an Operating Agreement. This is the “meat and potatoes” of an LLC and can be the difference in whether or not the LLC successfully protects you from liability.
As to a creditor’s rights, a creditor has no right to seize property within an LLC to satisfy the debt of a partner or member. As in a limited partnership, the creditors of a member of an LLC only have the “charging order” remedy. This entitles the creditor to only the member’s share of distributions, if any. Also, the creditor has the same worries about possible tax liability as mentioned in the limited partnership. As such, this makes this entity comparable to the limited partnership as an asset protection tool. Thus, the LLC can offer significant benefits over the corporation and other business organizations.
Does placing property into a trust protect my assets?
First you must understand how a trust functions. A trust is created by a settlor or grantor who funds or gives property to the trust. As the trust creator, the grantor sets the terms under which the donated assets shall be managed and distributed. The grantor names one or more trustees. The trustee may be the grantor. The grantor designates the beneficiaries who are to benefit from the trust and receive its income and principle. Certain trusts allow the grantor to be both the trustee and the beneficiary, as is common with the living trust. This type of a trust is called a self-settled trust and only a few states allow one to seek protection from its creditors by forming such a trust.
Also, there are two types of trusts, revocable or irrevocable. An irrevocable trust cannot be changed or amended by the settlor once it is signed. The settlor sets the rules on who, when and what is funded through the trust. A revocable trust is like a will. You can change or revoke a revocable trust. A revocable trust does not provide any asset protection as the settlor maintains all control over the assets of the trust and can change the terms at any time.
For a trust to fully shield your beneficiaries’ interest in the trust assets, you need a spendthrift provision which directly protects the trust assets from the beneficiaries’ creditors. Another important provision is an anti-alienation clause that prohibits the trustee from transferring the trust assets to anyone other than the beneficiaries. This includes the trust beneficiaries’ creditors. It is important that these clauses are drafted correctly to provide the intended protection. Further, you must check to see if your state recognizes or places limitations on such provisions.
Is investing money offshore legal, and will it protect my assets?
When the offshore option is mentioned as an asset protection tool, many people ask the question, “I thought only people who want to hide assets or avoid paying taxes go offshore”. This cannot be further from the truth. There is no doubt that people have tried to hide assets and avoid paying taxes but people can do that without going offshore. All offshore activity is documented and the IRS has set out procedures for reporting. With the lawsuit explosion and the creativity of lawyers, the threat of being sued continually increases.
When the right situation is present, the most effective asset protection plan will encompass both domestic and offshore options. This is because many offshore jurisdictions won’t recognize or enforce an American judgment. Therefore, in order for a judgment creditor to collect, the creditor would have to travel to the foreign Country and re-litigate his case and abide by that jurisdiction’s law. This option is often impractical as the foreign company may not even recognize the cause of action or the time for filing such a case has expired.
The two most frequently used planning tools are offshore limited liability companies and Trusts. In creating an offshore limited liability company the Island of Nevis has very favorable laws. The structure is the same as domestic limited liability companies. Nevis allows a single-member limited liability company, and the limited liability company can be either member-directed or managed by a foreign director. When putting together an asset protection plan the limited liability company should be managed by a professional foreign manager. Thus, the assets transferred to the limited liability company would then be controlled by this professional manager, and the assets would be protected from a U.S. court order. Further, as to creditor rights, Nevis law is similar to domestic law as a creditor is limited to obtaining a charging lien as a creditor’s remedy to go after a debtor’s limited liability company ownership interest.
The offshore asset protection trust compares to the domestic irrevocable trust, though the offshore trust is considerably more protective. The offshore asset protection trust is usually a “self-settled trust” where the settlor and the beneficiary are one and the same. In an offshore asset protection trust, the settler chooses the trustee. The trustee should be an individual who is not a U.S. citizen or a trust company with no U.S. offices or affiliation. The Trust will also have a protector that essentially oversees the trustee and ensures that the trustee acts in the best interest of the beneficiaries. This person does not have any beneficial interest in the trust and should also be an individual who is not a U.S. citizen. The trustee and protector should not have any U.S. ties so that in the event a judgment creditor requests a judge to order the return of the trust property, the judge would have no power to force the trustee or protector to comply.
As with the limited liability company, Nevis laws are very favorable when creating an offshore asset protection trust. In order for an offshore asset protection trust to be successful from U.S. creditor attack, the settlor cannot retain control over the appointment of any future subsequent trustee, or even the trust protector who potentially has the power to remove and replace the trustee. If a settlor retains this control, then a U.S. judge would be able to enter an order directing you to replace the trustee with a person who would be subject to the jurisdiction of the U.S. court. This would defuse the asset protection and would result in the creditors being able to get at the trust assets.
Again, in the right situation the offshore asset protection trust fits into asset protection planning by having a domestic limited partnership interest have the offshore asset protection trust as a limited partner. Upon any threat to the partnership or its assets, the partnership can simply liquidate and flow through to the offshore asset protection trust. Further, since the trust owns the limited partnership interest, it would not be subject to a charging order from creditors of any of the partners.
What is meant by an “equity stripping” of my assets?
You can’t always entirely rely on the exemption laws or to title your assets to one or more protective entities. When reviewing your asset protection plan there may be a time when we have exhausted all state exemptions and state allowed entity formation. At this point to complete a plan it may be necessary to strip the equity. For instance, some states do not grant unlimited homestead protection. So if one owns their home free and clear and it is worth $500,000.00 and the state only allows $300,000.00 in protection, there is $200,000 unprotected. The debtor does not want to place the house in a LP or LLC because they do not want to lose the tax benefit. Therefore, in order to protect the home you must create an additional shield by placing another lien against the home.
There may be other situations where you need this additional shield. The idea is to strip the equity from everything you own including both your real and personal property. The end result would be that all of your assets will be debt-ridden and, therefore, have no value to a creditor. There are conventional ways such as obtaining a second mortgage as well as unconventional ways. One such strategy would be to create liens without cash and without interest payments through properly structured executory obligations.