Tag: LIfe insurance

The Ultimate Asset Protection Structure to Protect Your Net Worth

Lawsuits are at an all-time high; there are over 80 million per year!  The more people struggle, the more they are concocting ways to extract your wealth from you.

Perhaps you may not feel you have a lot of wealth, but you may appear rich to others. Your insurance policies are like blood in the water that the sharks can smell from a mile away!

Don’t fall prey to thinking; no one has sued me yet, so why do I need to take these extra steps? My question to you is simple. What is your current risk tolerance, given your age and net worth? Can you afford to start over? I have known many have had to do that during 2020.

Keep in mind, simple vs. asset protection is inversely related. Meaning, those are successful rarely have all their assets in one legal entity. Why? If that entity were to be sued, you could lose all the assets in that one entity! Perhaps you will be protected personally, but your business may be gone.

Let’s assume you are thinking, “Ok, Scott…I want to protect everything. How do I do that”?

Let’s take a look at what that structure would look like.

  1. A separate legal entity for your main operating business. That may be a corporation or LLC.
  2. Another separate legal entity to separate your business into two parts. If you are brand new, this is not
    necessary. But if you have been in business for 20 years in one legal entity, that means one lawsuit could cause 20 years of business to go down the tubes. You may want to split up your product lines or services. If you do seminars, that may be a different entity from your information product business.
  3. If you have a business with partners and operate through LLCs, each partner should own their
    membership interest in their own LLC, not individually. Why? The LLC has the charging order protection that makes it more difficult for someone to come after the LLC owner, which is great. When you have partners, even with the charging order, you do not want any disruptions if the owner is sued for something unrelated to the operating entity. A second layer LLC will prevent that from happening.
  4. A separate legal entity for each piece of real estate you own (your primary residence will be a different
    approach). If you own rentals in Wisconsin where you can buy a house for $40K, you may not need a separate LLC for each piece of real estate. In California, the same house maybe $930K. In that case, a separate LLC may make sense. California has an $800 per year franchise tax fee so that you may consolidate based upon that fee.
  5. A separate LLC for your safe assets. That includes investments in the market, gold, silver, ownership in other
    companies (like any C corporations). For any entity taxed as an S corporation, there are limits on who may be the
    shareholder. Only a single-member LLC can be a shareholder. NEVER have your safe asset LLC be the
    owner of a risk asset, like real estate or a business.
  6. A separate LLC for your domain names. Domain names are virtual real estate free and clear. They may become quite valuable over time. If owned by your main operating company and sued, you could lose control of your most valuable asset.
  7. A personal residence trust for your home. If you have equity that your state homestead laws are not covered, this may be the best option to protect your equity and not have the negative consequence that placing your residence in an entity would entail. Attorney Rob Bolick is a great resource and referral partner with NCP and covers more details about the personal residence trust.
  8. A life insurance trust for your life insurance policies. This is part of the estate planning for your estate. Life insurance is not subject to income taxes but is subject to estate taxes, and that is why the life insurance trust is a must. Attorney Rob Bolick, an attorney in Las Vegas, would be a great resource for this as well. His number at his law firm is (702) 690-9090.
  9. A Nevada Asset Protection Trust. This is like having an offshore trust onshore. It would be the owner of your LLCs, and the living trust would be the beneficiary of the Nevada Asset Protection Trust. Nevada has a two-year statute of limitations, and when two years go by, you are home free from almost all creditors. Attorney Rob Bolick is the resource for this also.
  10. A living trust. Estate planning is essential, and most Americans do not have a living trust established. This will help pass your assets to your heirs and avoid probate when properly funded.
  11. An offshore entity. This is the top asset protection tool because the entity is in another country with different rules than the U.S. There are NO tax benefits to an offshore entity. The U.S. person would need to pay all taxes associated with it. The IRS is all over this type of entity, so again, to be clear, you must pay all taxes as a U.S. citizen.

Other keys point to consider:

  1. A buy-sell agreement with any outside partners in any business.
  2. Life insurance on all partners.
  3. A Nevada domiciled entity for your business which will add another layer of protection. Keep in mind the LLC will foreign register into your state of operations.
  4. A great accounting firm would be needed to keep the flow of money and tax organized.
  5. A great attorney is recommended especially if you make any changes to owners or officers of any of the entities.
  6. It isn’t easy to protect your assets AFTER you are sued personally. The key is to protect your assets BEFORE you have any issues.

Need help with a complete formation? See our infographic of our Complete 6 Step Formation Process

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