The Complete Guide to Asset Protection
Protecting What Matters Most
“He takes precautions in times of safety that protect him in times of danger. He thinks ahead and, in so doing, is prepared. He thereby enjoys a lifetime of good fortune and success.”
–Wu Wei on I Ching Wisdom, first written around 3000 B.C.
Most weekend mornings, my day begins in the same manner. My two toddlers, my wife, and I gather for breakfast at the kitchen table, then the kids get in their little red wagon, and off to the neighborhood park we go.
As I watch my children laugh and play at the park, I often wonder, “is there anything more I could do to make sure my children’s future is secure?” Knowing that my two children and my wife, Zane, will continue to live a safe, happy, and healthy life is what matters most to me.
As an Asset Protection attorney, I am able to help families protect what matters most. Whether it is a secure retirement, your children’s education, or the comfort that comes with knowing that you will get to enjoy the fruits of your labor, I am able to help you protect it.
In this article I will explain….
- Why you want to protect yourself from lawsuits.
- Your options for protecting yourself.
- Why you should consider giving me a call when you are ready to protect yourself.
Part I: Why You Want to Protect Yourself from Lawsuits
If you live in America, you are likely enjoying one of the highest standards of living of any society on earth. You are also living in the most litigious society on earth. In the time it has taken you to read this far, several new lawsuits have been filed and there are several new people whose lives have been profoundly changed for the worse.
Being the target of a lawsuit is one of the most difficult and emotionally painful experiences that many people will ever experience. Being sued is often compared to experiencing the death of a loved one or a divorce. The same way that a long-term sickness or contested divorce can ruin years of someone’s life, a lawsuit can cause serious emotional and financial stress to a family as well.
Unfortunately, more and more families are finding themselves in this particularly undesirable position. Our legal system, which was once meant to protect its citizens, has now become a state sponsored system for extorting those with wealth.
In the more than 200 years since the United States began, we have seen a reversal of the principals that were meant to protect the integrity of our legal system. Attorney advertising and contingency fees, which used to be strictly prohibited, have now become the norm.
Today, it costs nothing for a plaintiff to bring a lawsuit, while the cost to defend a lawsuit is outrageous. In addition to the months and likely years of emotional uncertainty and pain your family will experience, it can cost between $50,000 and $100,000 to defend a lawsuit, even if you ultimately prevail!
The results of these changes are frightening. One in three Americans will be sued at some point in their life. If you are married, chances are, one of you will be sued at some point.
Being the target of a lawsuit is a particularly painful experience. The typical process is as follows…
1. The Initial Contact. It takes only a minimal amount of contact for someone to be able to bring a claim against you. Perhaps the plaintiff will be someone you speak with on the phone or by email, perhaps the plaintiff will be someone who is a guest just once at your home, or perhaps you could be sued for an action of one of your children. It takes only minimal contact, for someone to establish his or her initial cause of action.
2. Hiring an Attorney. Sometimes plaintiffs will reach out to attorneys to start their case. Other times, an attorney will solicit potential plaintiffs in hopes of getting them to sue. Law firms typically operate like most businesses: if they believe they will get paid for their work, they will take on the new client. If an attorney does not believe the potential defendant has assets or the potential defendant does not have assets that they can reach, then the case will usually end here.
3. Notice of a Lawsuit. At this point, an attorney has been hired and the defendant is then informed of the unfortunate circumstances. The plaintiff’s attorney will then inform the defendant that a large sum of money must be paid within a short period of time or a lawsuit will be filed.
At this point, it is already too late to protect your assets. Once you have been informed that a lawsuit may be filed against you there is no way to protect your threatened property. There may be an opportunity to protect you other assets, however, so if you are already in this unfortunate position, still give us a call!
4. The Lawsuit. Once the lawsuit has been filed, the integration into your personal life begins. Your financial records and other personal information are subject to becoming public record and the plaintiff’s attorney will begin an aggressive mission to paint you in a bad light. Their goal is to make you appear to be the least sympathetic defendant possible. During this time, the plaintiff’s attorney will likely use a variety of tactics including fear and discovery harassment to coerce you into making a hefty settlement on their terms. You can choose to either meet their demands or roll the dice and leave your fate in the hands of twelve strangers.
5. Judgment Day. If a settlement can’t be reached, then your fate remains in the hands of a jury. At this point, you have already lost. You have likely spent tens of thousands of dollars in attorney fees as well as an incredible amount of time and emotional energy dealing with all of this.
Finally, you sit, wait, and hope. Perhaps a jury will come out in your favor, perhaps a jury will side fully with the plaintiff. The emotional harm has already taken its toll and the expenses of defending a lawsuit may soon be dwarfed by the cost of a judgment.
Too many families have seen decades of hard work wiped out by a single lawsuit. While we always hope to prevail when confronted with a lawsuit, wouldn’t it be much better if you could do something today that would mean that you wouldn’t have to worry even if you were sued? What if you could position yourself so that a someone who wants to sue you won’t make any money even if they do bring a lawsuit against you?
The good news is that you can do just this through a simple process called Asset Protection.
Part II: Asset Protection and Your Options
When constructing an Asset Protection plan, you need a plan that does not require you to give up control of your assets all the while ensuring that they are kept beyond the reach of lawsuits and creditors. When properly structured together, the tools discussed below will accomplish both of these goals.
Foreign Asset Protection Trusts
In 1984, when the Cook Islands passed their Trust Act, for the first time in history there was a clear and enforceable law that allowed for Asset Protection.
The Cook Islands Trust Act allows an individual to transfer their property into a Trust, remain the beneficiary of that Trust, and forbids Trust property from being distributed for the purposes of satisfying a lawsuit judgment.
In the 30 years since the Cook Islands enacted their Trust Act, a properly drafted Cook Islands Trust has proven to be virtually unbreakable.
A Cook Islands Trust is the strongest form of Asset Protection available worldwide. The Cook Islands make it very difficult for a plaintiff to bring a case by maintaining a strict prohibition on contingency fees and by requiring the plaintiff to pay all court costs including flying in judges from New Zealand. Additionally, the Cook Islands makes it much more difficult to win a case by requiring proof beyond a reasonable doubt, a standard much higher than the degree of proof required to win a case in the United States.
There is simply nothing in the world that is stronger for Asset Protection than a Cook Islands Trust. There are, however, two downsides to creating a Foreign Trust.
- You must hire a foreign trustee. Our clients receive this service at a discounted rate at one of the Cook Island’s most reputable and trustworthy firms.
- There are several IRS reporting requirements and forms to be filed. The reporting requirements for offshore Trusts including filing of Form 3520, 30520A, as well as several FBAR filings and FACTA disclosures.
Although these two things do not overcome the benefit of creating a Cook Islands Trust, they are a bit onerous if you are not actually defending your trust.
Domestic Asset Protection Trusts
The second type of Trust is a Domestic Asset Protection Trust. From 1984 until 1998 it was unclear whether the United States’ public policy allowed for an Asset Protection Trust. Then in 1998, Alaska passed their Asset Protection Trust law making it clear, for the first time in U.S. history, that the U.S. would allow for the use of an Asset Protection Trust.
Since 1998, about 15 other states have passed similar legislation allowing for some form of an Asset Protection Trust.
These Domestic Trusts have grown in popularity among attorneys and the general public for two main reasons. First, they do not require you to hire a foreign trustee. Second, there are no IRS reporting requirements for Domestic Trusts.
There is a big problem, however, with Domestic Asset Protection Trusts. Under Article 4, Section 1 of the United States Constitution, “full faith and credit shall be given in each state to the public acts and records and judicial proceedings of every other state.” This means that even though Alaska, for example, is a state which is supposed to protect your assets, Alaska must also give full faith and credit to any legal judgments made in any of the roughly 34 other states that do not recognize Domestic Asset Protection Trusts.
For this reason, we will never create a purely-Domestic Asset Protection Trust. In the U.S., Domestic Asset Protection Trusts have only been used for about half as long as Foreign Trusts, but we have already seen several failures of the purely-Domestic Asset Protection Trusts.
The Bridge Trust™
The third type of Asset Protection Trust is The Bridge Trust™, the ultimate tool in asset protection.
The Bridge Trust™ is a two-phase trust that combines the security of foreign asset protection with the simplicity of domestic asset protection. The Bridge Trust™starts as a Domestic Asset Protection Trust. You are the trustee and you can determine when distributions are made. Then, if the Trust ever comes under attack, your assets cross the Bridge and you receive the protection of a Cook Islands Foreign Asset Protection Trust.
Since it is so hard to actually break into The Bridge Trust™, its mere ownership of your assets is a significant lawsuit deterrent. Usually, when an attorney realizes that a defendant’s assets are held by The Bridge Trust™, the plaintiff is willing to settle for pennies on the dollar or will drop their claim entirely.
Other Tools We Use
In addition to The Bridge Trust™, we often use a single member Limited Liability Company and a multimember Limited Partnership when creating a comprehensive Asset Protection plan.
The single member Limited Liability Company. In my countless hours of speaking with other attorneys, clients, and in my independent research, I have found one thing to be true about the limited liability company (LLC): there is a lot of bad information out there — even more so than there is about Asset Protection in general. Here are two things that you need to know about what a single member limited liability company can and cannot do.
- A single member LLC can reduce the liability associated with owning a certain asset. For example, real estate or heavy machinery should be owned by a LLC.
- A single member LLC alone cannot shield personal assets such as your home or your personal bank account.
When integrated into a full Asset Protection plan, a single member limited liability company is a great tool for limiting your exposure to lawsuits but standing alone, a single member LLC offers very limited value in terms of Asset Protection.
The Multimember Limited Liability Company. The second tool we use along with The Bridge Trust™ and a single member LLC is a multimember LLC.
A multimember LLC is an excellent tool for limiting your exposure to lawsuits. Your Multimember LLC will own your single member LLC(s) as well as your non-business and non-risky assets. The biggest benefit of your multimember LLC is that it will give you Charging Order protection. When a plaintiff receives a Charging Order on your multimember LLC, this means that he or she has the right to receive all distributions made from your multimember LLC, but does not have the right to take anything else out of your partnership. So long as this creditor holds the Charging Order, you can simply withhold distributions and pay yourself a salary for managing the multimember LLC. Furthermore, the person who holds the Charging Order is responsible for the taxes levied on the multimember LLC.
Plaintiffs’ attorneys hate Charging Orders. Once an attorney finds out that the only thing they can “win” is a Charging Order (on which they will probably receive nothing and still owe taxes), they are very likely to either drop the case or offer to settle on your terms.
While working together, a single member and a multimember LLC offer a great first line of defense, but since both of these entities are subject to the U.S. court system, a result-oriented judge can strike them down. For this reason, you still want the ability to remove your property from the jurisdiction of the U.S. Courts. The way to do this is to fortify your single member and multimember LLC with the backing of The Bridge Trust™.
Together, your single member LLC, multimember LLC and The Bridge Trust™ will provide you with the utmost peace of mind that your life will not be disturbed by a lawsuit.
Part III: Why You Should Work with Our Firm
Here are a few reasons why clients choose to work with Mile High Estate Planning…
Time Tested & Proven Asset Protection
There are thousands of different types of Asset Protection tools and services being marketed to the public everyday. Unfortunately, when many of these tools and services are tested in court, they fail to actually protect anything. The Bridge Trust™ has never failed to protect our clients when it matters most.
Through the use of The Bridge Trust™, we are able to provide you with the same protection of a Cook Islands Trust at the cost to set up and establish a Domestic Trust. You will have access to exclusive relationships with our offshore service providers and the highly discounted fees and access we have negotiated for our clients. We cover the cost of your Arizona statutory agent and serve as the initial protector for your Trust. We do not bill hourly; instead, we encourage client communication. After all how much can we help someone who does not want to communicate with us?
Relationship and Service
We pride ourselves on the superb level of customer service we deliver to all of our clients. You can always expect a call back within one business day, although almost all inquires are responded to the same day. When you are in a crisis, you want to have a firm that you know you can get in touch with quickly.
I hope we have given you some reasons to take the next step in protecting what you have worked for and what your family should enjoy.
It is unfortunate that the legal system that was designed to protect us is now routinely being used to extort those who have worked hard to accumulate wealth for themselves and their families. Those of us who are lucky enough to have something to protect, have a responsibility to do so.