Asset protection is like a fire extinguisher. You have one in case there is a fire, but you hope you never have to use it. When you use asset protection as your fire extinguisher, you’re protecting yourself and your family from potential loss. John D. Rockefeller said, “Own nothing but control everything.” That is the key to asset protection, because you can lose all that you own.
If you have assets held in your name, they can be taken away from you. However, if your assets are held inside a legal entity, that is not actually you, for purposes of the rules of attribution, but is under your control-that’s a whole different matter.
It is much better to own nothing and control everything. You can even create an entity in such a manner as to retain the tax benefits and other beneficial aspects of ownership, without the burdens of ownership.
There are four plans within a master plan in asset protection:
Financial and business plans
Lawsuit protection plan
The master plan also looks at three basic concepts and builds the individual plans based on one or more of these concepts:
Ownership versus control
Ownership versus Control
The fact is you can be sued at anytime by anybody. You’re not lawsuit proof, but you can make yourself judgment proof. If you change the way you hold title to most of your assets, you’re greatly lessen the chances of losing all your assets.
If you owe taxes, you should pay your fair share based upon your lifestyle choices. However, it’s perfectly legal to minimize your taxes, even if that number is zero. IRS code 419(e)/83(b) gives you the tax planning methods you can take advantage of as a business owner. These tax planning advantages are phenomenal.
For example, if you are a business, you can adopt a welfare benefit plan. The Welfare Benefit Plan currently under IRS regulations doesn’t have a cap. That means you can put as much money as you can into it and then deduct it as a business expense.
The Welfare Benefit Plan also provides security for your family in the event of your death, because it’s usually funded with a whole life insurance policy. This is in addition to the benefit of taking a deduction for every dollar that goes into it. It also increases in value on a tax-free basis that you can borrow from tax-free. Financial Privacy With the advent of the Internet, financial privacy and identity theft have become critical issues. You now have to take additional steps to protect yourself in the high tech world we live in today. As technology increases so, will the need for more involved privacy options.
When trial attorneys get ready to file lawsuits, one of the first things they do is search to see if you’re a good candidate. One of the primary things they search for is property and assets held in your name, as well as what kind of car you drive, what your bank account balances are, etc. If you can enhance your personal privacy, it’s going to lower your profile in terms of being at risk for a lawsuit.
Types of Assets There are basically four types of assets that need protection from lawsuits:
Investment holdings such as mutual funds, stocks and
bonds, option trading accounts, etc.
Retirement accounts and Insurance policies (casualty and liability)