Asset Protection: Keep It Clean And Simple
Asset Protection: Keep It Clean And Simple
Hi, this is attorney Gary Fales. Today I want to speak with you about keeping it clean and simple. I have seen many asset protection plans that perhaps may work, but they're so complex and administratively cumbersome that after a couple of years, clients no longer want to keep these types of plans going.
(For the following case example, all details and locations have been changed to protect client information.) I met with such a client a few weeks ago. He had an attorney in California form entities for him in Colorado, Delaware, Wyoming, Nevada, and Oklahoma (I never figured out that one.) He had employer identification numbers for each of these, and he had bank accounts for each of these. It was a mess. The truth is, he hadn't ever completed the funding, and nothing had been transferred in these entities, so there was nothing being protected. He also had tax returns that he had to file for each of these entities; t was a nightmare just to unwind it.
I had to get powers of attorney from the IRS to be able to speak with the IRS about the employer identification numbers and what tax returns needed to be filed. There were annual secretary of state filing fees that had to be paid. Each of these entities had the state filing fees. There were resident agent fees that he was paying. There were bank account fees and there were tax returns. There were annual meetings he was supposed to be holding (that he wasn't) with minutes. For the type of protection that he was looking for, it was overkill. It was way, way too much.
In my own life, when I've helped clients years ago with these types of entities, at most they lasted 2-3 years, and then they stopped renewing and filing those fees, and then the entities went into default. I like to keep plans clean and simple. There are lots of different things that could be done: you could form captive insurance companies, you could use liens, you could use offshore liens, offshore trusts, offshore companies- it just goes on and on as to the types of things that could be done.
But is it going to be a plan that you will keep for the rest of your life? I have found that if it is, it's got to be simple, understandable, and clean. It's true that you could be sued by anyone at any time for any reason, but there is a limit to how far we want to go to protect ourselves. And that's coming straight from the asset protection attorney's mouth. Yes, I said that there is a limit. There is a cost/benefit analysis that has to be done at some point.
That's one of the reasons I love the Nevada Asset Protection Trust and asset protection trusts in general: these trusts are clean and simple. You transfer the assets into the trust, you have trustees, you don't have any tax returns that are due, and there are no minutes that have to be kept. (It would be good business practices to do keep minutes, but you don't have to.) There are minimal items that need to be performed. You need to do trust accounting, but you have to do your trust accounting anyway. And it's simple; you can do trust accounting by keeping a good checkbook balance. The annual fees on domestic asset protection trusts are essentially zero.
While an offshore trust may also be "simple," you start getting complex again because of the annual filing fees that are required with the trustees, not to mention the incredible amount of tax return reporting that is necessary for these offshore entities.
So, keep it clean, keep it simple. If you have rental properties, use a limited liability company and have the property in the limited liability company, and then have the limited liability company owned by the trust. Only Two structures are needed: the trust and the LLC. That's it!
If you have significant wealth in investment accounts, and you want an added degree of control, form a second LLC, put the investment account in the LLC, and have the LLC owned by the trust. That's it, nothing more.
You can also use your state exemptions. Make sure you have a good homestead, and make sure your retirement plans are properly structured to have maximized protection. Use the normal exemptions that are already granted to us by the state and federal governments for your annuities and your life insurance. Protect the rest of it with LLCs and the asset protection trust. This is Gary Fales, encouraging you to keep it clean and simple.
Gary's website: http://GaryFales.com
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