Why You Need Asset Protection: It’s Not Paranoia If They Really Want To Get You
Regardless of where you are in developing and implementing your business and personal wealth building plan, you need to think about asset protection. That means whether you have nothing, a little, or a lot, you should have a plan to protect your wealth. And that plan must be in place before you need it, because there is no doubt that you willpower need it at some point.
When you hear “asset protection,” you may think lawsuits first. That’s understandable, because statistically you’re likely to be sued anywhere from one to five times in your lifetime. Thanks to a combination of high-value punitive damages and the willingness of defendants to settle to avoid trial, people have come to view the legal process as a lottery where they can win anywhere from a few thousand to millions of dollars. But lawsuits are only one of the top four threats to your wealth. The other three are income taxes, capital gains taxes, and inheritance and inheritance taxes. Protecting your assets from these four threats is the foundation of an effective asset protection strategy.
Protecting yourself from threats
Let’s take a look at the basic methods you can use to protect yourself from threats to your wealth. When it comes to lawsuits, you want to remove the financial incentive to litigate. You do this by keeping your assets out of your name so that the litigator must go after the business entity and not you personally. Then, with its assets housed in different entities, it applies additional strategies to make those entities unattractive targets.
When a plaintiff’s attorney considers taking a case, the first thing they do is an asset search to see if the entity that is potentially liable is worth suing. By owning your investments and other assets in appropriate business entities, you can restrict the options plaintiff’s attorney has. He may not be able to fully protect the asset itself, but he can ensure that you are not held personally liable and that your other assets are protected.
What if they sue you for something personal? Whether your assets are real estate, stocks, businesses, or something else, you want to own them so that you are not at risk if you are sued personally for something that is separate from the business. For example, suppose you are involved in a car accident, you are sued, and the plaintiff wins. That has absolutely nothing to do with your real estate investment, and you don’t want those assets used to satisfy the judgment. You want to protect assets that are not related to the lawsuit.
Of course, you may or may not have to deal with a lawsuit at some point, but you can be sure that you will have to deal with taxes. Your goal when it comes to taxes is No about tax avoidance, which is illegal. It’s all about minimizing your tax liability legally.
For example, you can reduce your income taxes by spending pre-tax dollars, dividing income into lower tax brackets, and taking advantage of all available tax deductions. You can reduce or eliminate capital gains taxes by moving money to tax-free or tax-deferred entities. And you can use entities like a living trust to avoid probate and maximize the value of your estate.
A business entity alone will not achieve all of its objectives: it is a case of “united, it falls, divided, it stands.” You need strategic entity planning, so you know exactly when and how to use specific entities like corporations, partnerships, LLCs (limited liability companies), various trusts, and even sole proprietorships. For example, many investors use a corporation as their tax planning and liability protection entity and LLC for asset protection.
Do it now
If you don’t have an asset protection plan, the time to create one is now, when things are going well and there are no threats on the horizon. When you transfer assets to hinder or delay a known creditor, that is considered a fraudulent transfer, can be undone, and you may face other consequences. Also, tax laws are specific about when you must take certain steps to qualify for deductions and other tax breaks. Don’t wait until you’re faced with a massive tax bill to start thinking about tax reduction strategies.
One last word: Don’t use asset protection strategies to avoid legitimate debt. If you contract an obligation, fulfill it. If there is a dispute, address it with integrity. Just don’t let someone who is not entitled to what you have worked so hard to earn take it away from you without your permission.
