Asset Protection the Sneaky Way, or the Way that Works?

Asset protection is ripe with sneaky ways to take care of assets. Hot shot attorneys will set out elaborate layered asset protection plans. One trust will own the corporation or LLC and then that company will own a second trust. Other folks will try and remain totally anonymous. They never put their name on anything. There are problems with both of these types of sneaky asset protection.

Layers of Asset Protection

The idea with layers of asset protection is that numerous layers of entities will supposedly make it so you’re not personally liable. One of the favored plans is for a corporation to be the general partner of a limited partnership. Then you are not personally liable if there is a problem. With multiple layers of asset protection, if a creditor gets through one “corporate shield”, then the other ones will supposedly hold.

Attorneys love these plans because lots of structures add a lot of costs to your asset protection plan. The attorney gets his fee for each entity that is established. That is not the only cost. There are state fees for each entity you establish (basically everything but trusts). Then there is the time involved in the up keep of the structures. I have seen these types of layered asset protection plans collapse under the cost and work involved in keeping all of these structures in place.

Remember, a chain is only as strong as its weakest link. So unless you have the means to support the structure, and can pay attention to the details of caring for each entity, this may not be the best type of asset protection for you.

Hidden Asset Protection

Uninformed people often try hidden asset protection. They will refuse to put their name on anything. They are certain that no attorney can find their assets and then they will be judgment proof. I was trying to set up an asset protection and estate plan for one of these types of people. He even refused to give me the names and property descriptions of his property. I finally told him to give me the address of his home and his full name.

Attorneys have authority to access databases that are not generally available to the public. It took our office about an hour to find the address of all of his 11 properties and his bank accounts. When I presented him with the information, he was crushed. He had meticulously taken his name off each of his properties after he had mortgaged them. Unfortunately the mortgage records were available. Next he said, “Obviously anonymity didn’t work for asset protection. What can you do for me?”

Asset Protection that Works

I don’t recommend trying to hide assets. There are other disasters waiting to happen when you put multiple layers of asset protection in place, or try to sneak around. Like chains, your asset protection plan is only as strong as the weakest entity. I recommend just using an LLC to own your investment property and another LLC for your management company. You must keep the LLC up if you are to get good asset protection. I far prefer the clean, crisp asset protection shield versus the “let’s throw the kitchen sink in and hope something holds” approach. In my book, Protecting Your Financial Future, I cover many more examples. Simplify your asset protection plans, and you’ll have a stronger plan.