Asset Protection Strategy

How Millionaires Protect their Assets

Asset Protection Strategies 1: Federal and State Exempt Assets

Federal and state exempt assets are the most well protected. Your asset protection strategy should be to first maximize the number of exempt assets. Each state law identifies assets that are absolutely exempt from creditor claims. Federal law also exempts certain assets.

Asset Protection Strategies 2: Captive Insurance Companies

Captive insurance companies are companies where shares are owned by a second entity such as an irrevocable trust. Successful businesses can use such insurance companies to provide superior asset protection in addition to risk management and potential tax benefits.

Asset Protection Strategies 3: Debt Shields

Debt shields are ideal forms of protection to protect equity in real estate. This applies especially to personal residences.

Asset Protection Strategies 4: Protection and Casualty Insurance

Property and Casualty insurance protects against property and casualty losses. P&C insurance are especially important in the litigious American society, as they also cover your legal bills. That means that you would be well insured even against the legal costs.

Asset Protection Strategies 5: Trusts to shield wealth

Revocable Living Trusts and Irrevocable Trusts are both extremely powerful. Each serves different asset protection needs. Trusts should be a definite component of your asset protection strategy.

Asset Protection Strategies 6: Family Limited Partnerships and Limited Liability Companies

Family Limited Partnerships and Limited Liability Companies are both excellent ways to shield your assets from litigation. But make sure you understand the differences between the two.

Importance of Asset Protection Strategies

Increasing number of lawsuits recently. Americans seem to believe that lawsuits are a way to make money quickly, and thus often resort to lawsuits for even the most trivial matters. Headlines in the papers suggest often ridiculous decisions (Man receiving 1.5 million from an airline because of tea spilled on his suit; lady receiving $400,000 for missing her menstrual cycle because of workplace stress).

Overtime, Americans inevitably think, ‘why not me?’, leading to more and more outrageous lawsuits. Having a sound asset protection strategy is crucial.

British rule of legal fees

According to the British rule of legal fees, the party which loses the case usually has to pay even the other’s legal fees. This effectively guards against people suing one another unnecessarily.

In contrast, according to the American rule of legal fees, each side pays its own legal fees regardless of the outcome of the case. While this rule was created so as not to discourage people form suing large businesses, it has also clearly increased the number of unnecessary lawsuits: as Jarvis and Mandell note, the plaintiffs have a lot less to lose even if they bring a meritless case. With the prevalence of contingency fee attorneys, plaintiffs are literally in a no-lose situation, as contingency fee attorneys do not charge clients hourly fees; they are only compensated if they win the case.

On the need for an asset protection strategy: In contrast, defendants are often on the losing end. Even a successful defense would be significant defense costs and legal fees; the intangibles involved – lost time and undue stress – and also important costs to be taken into account.

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