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Asset protection has become a topic of great interest to professionals, executives, business owners, and real estate developers. A fluctuating economy, in today’s tough credit market, professional malpractice, toxic waste liability and increasing exposure to tort and contract claims have increased the focus on how to lawfully protect one's assets from creditors. However, asset protection planning is not just for high paid professional executives and the super wealthy.
Today's world is an environment filled with lawsuits, taxes, accidents and financial risks that can easily wipe out anyone's assets, it is the sniper in the woods. No matter how safe you feel, you can never be certain that the wealth you have built up over a lifetime won't suddenly be taken from you tomorrow. Whatever your occupation or lifestyle, we all are close to financial disaster and potential liability.
There are a number of reasons for asset protection:
(1) High risk professions: High risk professions include business owners, doctors, dentists, directors, office s, lawyers, tax practitioners, real estate broker, financial planners, builders, developers, and anyone else who has assets and a license.
(2) Joint accounts: In many states, the creditor of one joint tenant to a bank account can seize the entire account balance to satisfy a debt. The theory is that since the debtor-joint tenant can take all the proceeds from the account, their creditor has similar rights.
(3) Joint tax returns:The filing of a joint income tax return makes both parties jointly and severally liable for any subsequent tax deficiency.
(4) Business failure: The chance of failure within the first five years is substantial
(5) Unexpected medical bills and long-term catastrophic illness;
(6) Defective partnerships; Partners break up and sue each other
(7) Personal guarantees
(8) Making bad decisions when acting as an officer or director of a corporation;
(9) Non payment of employment taxes;
(10) Employee negligence; car accidents, bad/defective labor/workmanship
(11) Breach of contract; Cases (auto, landlord/tenant)
(12) Disputes with business partners; over how to run the business
(13) Automobile accidents; personal employees
(14) Libel and slander;
While the legal theories behind lawsuits grow increasingly more creative and outrageous, the following is a list of the more common sources of lawsuits:
(1) Errors and omissions;
(2) Accidents and personal injury;
(3) Contractual disputes
(4) Wrongful discharge of employees;
(5) Sexual harassment;
(6) Product liability;
(7) Spouses, children and pets; (in rentals)
(8) Employees and agents;
(9) Gender, racial and age discrimination;
(10) Personal guarantees;
(11) Business combinations and relationships;
(12) Neighbors; (fighting)
(13) Environmental and toxic waste liability;
(14) Unpaid property, income, estate and gift taxes;
(16) Child support;
(17) Marriage and living-together arrangements; and
Best described as that liability that projects outward from the ownership of assets. It does not require any act by the property or business owner. A tenant may injure themselves by falling on rental property which you may own or if a repair man gets hurt on the rental property. Control of this type of liability often involves the use of title holding entities such as limited partnerships, corporations and limited liability companies. The theory is to contain any liability within the entity and prevent the individual/owner from being personally liable.
Generally requires the active participation of the individual alleged to be liable. Any lawsuit that is inward (i.e., imploding) at the individual regardless of whatever entities he or she uses to hold their assets or operate the business (owner smashes his car into a line of school children). Thus, anything owned or controlled by that individual is at risk.
Insurance achieves asset protection by sharing risk with other parties and risk management. However, coverage and availability vary and one must be sure that policies purchased cover the risks which you wish to protect yourself against.
Asset placement involves gifts and transfers to other persons and entities. Gifts can be made to spouses, family members and charities. Legal entities such as LLCs, Corporations and trusts can be used to hold title to assets or operate a business. Such entities are often stacked or tiered creating a layer ing effect. In some cases, assets are even transferred outside the United States.
As a matter of public policy the federal government and the states provided a number of statutory protections. Certain assets are exempt from creditors both in and out of bankruptcy. Homesteads are available in most states. Almost all retirement plans are exempt from attachment by creditors.