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Protect your ASSets

Ok, I apologize but I couldn’t resist the title for this post.  Our society is crazy with litigation. Yes, you can blame the lawyers but individuals have to hire the lawyers and sign the lawsuits that are filed! However, it’s no doubt litigation is out of control, people sue for everything big and small, and juries sometimes give crazy judgments (i.e. McDonald’s hot coffee at the drive-thru case).

If you are like me you live an honest life. You work hard, you stay out of trouble and you are not a huge risk taker. However, life has risk no matter what you do! Let’s talk about protecting against that risk….

Start with insurance. Of course you should purchase insurance for large risks from a top rated insurance company.  House, car, liability, health, business, and of course an umbrella policy. In my opinion if you don’t have a million or two, at least, of umbrella insurance, you are missing a major piece of asset protection. Finish reading my blog post and then call your insurance company!

Ok, so you have insurance, you have an umbrella policy and you live a relatively careful life. That’s a good start. Let’s talk about what else you can do.  Your standard revocable “living trust” does NOT provide asset protection for you. Yes, really! A revocable trust is a dynamic device but it provides you no protection.

What about you setting up a trust for a third party (your kids) or your parents setting up a trust with you as a beneficiary?  The current gift tax laws allow for five million to be transferred tax free NOW. This is a huge change in the gift tax laws. The exemption had been stuck at one million for almost 10 years. In theory the gift tax exemption goes back to one million on January 1, 2013 so this is planning to do NOW.  You can put five million into a trust to benefit “your spouse” and “your children.”  You don’t need names; it can even be future people. Your best friend can be trustee.

By doing the above trust you have given away your assets so protected from your creditors. It’s in a third party trust so your kids are protected.  Your best friend is trustee and, in theory, he can only give assets to your spouse and kids. Presumably your spouse and kids will share with you right!?

Yes there is some “risk” involved but I would rather bank on my kids and best friend rather than some stranger who might sue me!

That type of trust arrangement is tough for a lot of people to swallow but there are a lot of other things we can implement to give you protection without giving up much control: a qualified personal residence trust, an irrevocable life insurance trust, and a family limited partnership to name a few.  Let’s chat about these options and others!

-John

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