Multiple Asset Protection Layers Often Don’t Work

The hot shot speakers and the hot shot lawyers go through elaborate asset protection plans where one trust owns the corporation or LLC and then that company owns another trust. One of the favorite structures is for a corporation to be the general partner of a limited partnership, thus making it so you’re not personally liable as the general partner.  I have seen many structures where a corporation is the owner of all of the person’s LLCs.

All of this is done to get multiple layers of asset protection.  If they get through one “corporate shield”, then the other ones will maybe hold.  These schemes add a lot of cost to your asset protection plan.  The lawyer gets his fee for each entity that is established.  There are state fees for many of the entities (basically everything but trusts).  I have seen these types of structures collapse under their own weight.  Remember, a chain is only as strong as its weakest link.

Your multiple asset protection layers plan is only as strong as the weakest entity.  It would be better in most cases to just use an LLC and not have three entities all owning each other.  Keep the LLC up, and you get good asset protection.  There are a number of disasters waiting to happen when your corporation owns all of your LLCs.  First of all is your failure to “maintain” the corporation.  If you don’t do that, then the whole plan fails.  Corporations take a lot more maintenance than an LLC.  If you are treating the entities the same, I’ll guarantee you are in trouble.

There are other disasters waiting to happen when you put multiple asset protection layers in place.  I far prefer the clean crisp asset protection shield to the “let’s throw the kitchen sink in and hope something holds” approach.  You’ll be a lot happier if you simplify your asset protection plans, and you’ll probably have a stronger plan.

by Lee R Phillips Attorney