Helping Families in Irvine, Orange County and throughout Southern California safeguard their legacy with effective Asset Protection strategies.
The Need for Asset Protection
It has been estimated that 50,000 lawsuits are filed in this country every day of the week. This has come to be known as the "litigation explosion." Whatever the causes - a breakdown of traditional values, the loss of a sense of community, too many hungry lawyers, wasteful insurance companies - the impact on each of us is significant.
The Need for Asset Protection
- Owners of rental properties, contractors or real estate developers
- Anyone with a fiduciary duty such as physicians, dentists, officers or directors, CPAs, financial planners, attorneys, engineers, other professionals
- Most business owners
- Owners of risky assets
Even if you do not fall into one of the above categories, you should compare and weigh your own risk of being sued against the value of your nonexempt assets because if you are sued, everything that you have worked hard to create will be placed in jeopardy. And, even though our legal system should hold people responsible for their acts, the reality of our legal system is that people are named as defendants in lawsuits not because of their degree of fault but because of their ability to pay. This is called the search for the "Deep Pocket Defendant.
California is a Creditor Friendly State
California residents and business owners often need substantial planning assistance. The following are a few examples of the problems encountered by California residents and businesses:
- California's homestead provides a maximum $150,000 homestead exemption (if you are 65 or older) in a state with notoriously high home values whose averages are well above that amount.
- California courts have held that the statute of limitation for a fraudulent transfer claim does not begin to run until the creditor has obtained a judgment; in most other jurisdictions, the limitation period generally begins at the time of the transfer. Thus, no transfer in California may be safe from a fraudulent transfer claim until at least seven years (the stated time in the unique “extinguishment” statute of limitation under the California UFTA) has passed.
What is Asset Protection Planning?
- Asset protection planning is the restructuring of your assets to minimize the chance of loss from future creditor claims or lawsuits.
- Asset protection planning is not hiding assets, fraudulently conveying assets to avoid creditors, nor tax evasion.
- Many business owners and professionals should consider asset protection strategy as a sensible inclusion in their normal business planning.
Scale of Asset Protection Strategies
- Risk Analysis compared to value of nonexempt assets
- Maintain Adequate Liability Insurance
- Exempt Assets
- Property Agreements
- Counseling about Inside versus Outside Liability
- Separation of Dangerous versus Safe assets
- Protection of individual assets
- Business Entities
- Employee Benefit Plans, various Retirement Plans, ERISA and Welfare Benefit Plans
- Premium Financed Insurance
- Use of Multiple Entities
- Domestic Trusts
- Equipment/real estate leasing from entity that owns equipment/real estate
- Equity stripping
- Offshore Trusts
- Combinations of the above
- Jurisdiction Shopping
Insurance is important- but it doesn’t solve the most significant problems
Liability insurance is generally considered to be the first level of protection from creditors. You have already insured high risk assets such as your automobiles and high value assets such as your home. You should also discuss with your insurance professional the amount of excess, umbrella and different types of liability coverage that are necessary to cover your risks of exposure over underlying limits of coverage.
Generally, insurance alone will not be considered adequate protection for any significant risk. First of all, insurance does nothing to prevent the creditor’s claim or lawsuit from being made or filed. Second, certain categories of risks, such as business owners and physicians, will be unable to obtain adequate insurance. Third, some claims will inevitably exceed the available limits. Fourth, many people would be surprised if they actually read their policies and learned of the myriad of exclusions to coverage. Fifth, many people are surprised to learn that once you file the insurance claim, your own insurance company actually becomes your adversary and seeks to mitigate either the validity of the claim or the damages sustained. Lastly, the insurance company may fail. For any significant risk, it is therefore wise to consider adding a layer or layers of protection that would prevent the creditor’s claim or lawsuit from being made or filed. |