Let me start by saying there is no magic trust. As I often tell clients if there was a magic creditor protection trust we could all get one, stop paying for car insurance, and leave reckless lives. Not saying we all would but a lot of people would. Though there is no magic trust there are steps you can take to make your assets protected, at least to some degree, from creditors and liabilities.
The first step is PLAN AHEAD. You can not do asset protection when you have a lawsuit coming. That is when you know, or should know, you are about to get sued you can’t set up asset protection. Well, you can but it can easily be defeated as it would likely be construed as a fraudulent conveyance or fraudulent transfer. When I speak of estate planning this would include giving assets away when you know you are in trouble. That’s generally not the best move to make. There are exceptions to this rule like OJ Simpson for example. It is my belief that OJ mortgaged his house in Brentwood to the greatest extent he could and then moved the money to a lawless island nation somewhere. He also moved any other assets (stocks, bonds, cash) to the lawless island nation. His NFL pension was already creditor protected so he didn’t have to worry about it.
The second step is to consider what’s practical for your assets and your situation. OJ was an extreme situation as he knew was in deep trouble and he probably had extensive assets. He probably spent many tens (if not hundreds) of thousands of dollars to set up the most complex asset protection he could. As stated above he probably created an off-shore trust in some lawless island nation… or more likely multiple off-shore trusts at multiple lawless island nations. I point out them being lawless as you have to move control of your assets to a place that won’t honor the US laws… and thus how do you know they won’t just steal your assets from you!? Obviously most people aren’t in as much trouble as OJ and probably don’t have as much in the way of assets. Thus, what’s practical for YOU?
I have discussed the topics before so today will just mention them briefly. In coming days I will give more details. Starting with the simplest to the most complex here are some things you can do with your estate planning to create creditor protection.
First, a revocable trust provides no actual creditor protection. However, what if that trust has a name other than your own name? I have seen people name there trusts after a street, a family member, their maiden name, their dog, or just a generally pleasant name (i.e. The Oak Hills Trust). Again, this provides no actual protection but can make it harder for potential creditors to know what you have.
Second, an irrevocable life insurance trust. Don’t own your life insurance yourself. Instead put it into an “ILIT” which can create creditor protection and tax savings. Plus, it can create a totally protected trust for your spouse or loved one who receives the money after you die.
Third, a Qualified Personal Residence Trust. A “QPRT” is a dynamite way of protecting your house from creditors. It’s simple, not too expensive, and we believe provides solid protection for your personal residence or a non-rental vacation home.
Fourth, a Family Limited Liability Company or Family Limited Partnership. A “FLiP” is a common vehicle to hold rental properties, other real estate and even stocks, bonds and investments. It’s a great way of muddying the waters!
There are more options but the above are the basic ones that can be done without too great of cost. They can be implamented by middle class families who are concerned about losing their hard earned assets. They are not impervious but they are better than doing nothing!
Contact me to discuss these and other options or visit our home page at www.californiaprobate.info