Asset protection planning requires knowledge of laws of the state and federal exemption, bankruptcy, tax, trusts, jurisdictions comparative laws, estates, business, and corporation entities. There are laws in all states to protect certain assets from creditors. These are known as exempt assets because they are exempt from being seized in a bankruptcy or a lawsuit. In some states IRA’s are the most commonly exempted asset. Another asset afforded exemption is a homestead Annuity contracts and life insurance policies are also protected in some states.
- All fifty of the United States have laws that protect life insurance, but they differ in protected amounts. Some US trends are as follows:
- Most states safeguard the total policy from the policyholder’s creditors. Some of them also shield against the creditors of the beneficiaries.
- States which do not protect the total policy set certain amounts over which a creditor cannot proceed. For example the amount is $20,000 for Arizona.
- Some states only protect the policy if the beneficiaries of the policy are the spouse or children of the policyholder.
- Few states protect the cash surrender value of the policy in addition to the proceeds. You should consult your own state exemption if you have a life insurance policy with a substantial cash amount.
- Many states protect annuities. Annuities are of two types: life annuities and variable annuities. An insurance contract that contributes to investment vehicles on the basis of tax is known as a variable annuity. An insurance contract in which an investor pays a specific amount of up-front money and the company then pays back to the investor on a timely basis—as long as the investor or his or her spouse is alive—is called a life annuity. Many states in the United States shield annuities from the claims of creditors. An annuity is an excellent tool for safeguarding wealth in those states where they are exempted.
To protect assets in Colorado, it is beneficial to buy insurance policies. Liability insurance covers the property damage caused by others and personal injuries; the company’s assets can be covered. It is advisable to have an attorney review policy coverage to ensure its adequacy.
Inventory everything you have, making a proper list of debts and assets, including investments, retirement assets, and vacation properties. These assets can be included in litigation. Some are unaware of which assets are exempt and which are not; they therefore require professional asset protection advice. Exempt assets include:
- Social security benefits.
- Health benefits.
- Annuity policies and life insurance.
- Retirement benefits, private or public.
- Personal effects, such as jewelry and clothing.
Among the most debtor-friendly laws in the country are the Florida asset protection laws. Here are a couple of ways you can protect your assets in Florida.
First, transfer assets into a creditor exempt vehicle. The Florida homestead exemption, however, is the best way to protect personal assets. The Florida homestead exemption protects a homestead property where interest added to or interest acquired in it. Creditors holding homestead property liens can attach a lien on property. Mechanic’s liens, mortgage liens, and federal liens are three common liens.
Second, remove your name from assets by transferring assets to a limited liability company to protect from creditors liens. Another possibility is to move the assets to an irrevocable trust.
Missouri, Alaska, Nevada, and other states permit residents to protect assets from creditors. This is great news for those of these states concerned about prospective claims. The Missouri Uniform Trust Code or MUTC was made effective on January 1, 2005 and it applies to pre-existing trusts. A statutory framework is provided by the MUTC covering most of trust asset protection issues. This law clarified many questions that were unclear in the previous law. The creditors’ capability accessing trust assets is dependent on conditions of the trust and whether there is a spendthrift provision present in the trust. A spendthrift provision provides protection to beneficiaries. In Missouri, the spendthrift provision is only valid if it contains voluntary and involuntary transfer of assets to the beneficiary.
If there is no spendthrift provision in a trust a judgment creditor or an assignee may access the assets of the beneficiary. Missouri trust drafting guidelines:
The trust must be irrevocable and cannot be amended by a settler.
Beneficiaries of the principle or income of the trust is not restricted to the settler.
There must be a spendthrift provision applicable to the interest of the settler. The settler might not have the right of receiving a particular portion of the principal or income of the trust.
Benefits of Forming a Nevada Corporation
A corporation, as recognized by law, is like an artificial person. It is completely separate from those who own and operate it. Therefore, forming a corporation offers more asset protection benefits than forming a sole proprietorship or general partnership. A sole proprietor is liable and a partner is fully liable for another partner’s actions. Forming a C Corporation in Nevada is beneficial because it is a separate entity. The debts and taxes of the corporation are separate from those of the shareholders, officers, and directors. Forming an S Corporation in Nevada offers higher liability protection. Moreover, Nevada offers tax exemption.
Some of the benefits of incorporating your business as an S Corporation in Nevada are: no taxes on corporate shares, no franchise tax, no state personal income tax and the state requires minimal reporting and disclosure. There is no IRS information sharing agreement so there is complete privacy. Additionally bearer shares are allowed in Nevada, so you can buy shares without providing your name.
Nevada has designed various statutes to attract corporations. It offers a virtually tax-free environment, exempting officers, directors, and shareholders from being liable for corporate activities. The corporate law in Nevada offers an overall favorable asset protection environment.
In New Hampshire, the grantor does not need to be a resident of the state. Similarly, there is no need for the beneficiaries to be residents but the trustee must be an individual or an institution based in New Hampshire who holds the right of trust management.
In New Mexico, homestead laws exempt up to $30,000.00 of home equity from creditors. New Mexico homestead law protects only a primary residence. An LLC combines the tax benefits of a partnership and the limited liability of a corporation. A LLC is low cost, has no annual reporting requirement, and requires minimal maintenance that makes it New Mexico’s best asset protection strategy.
In New Mexico the Articles of Organization require minimum details: the name of the company, address of the main office, name and address of the registered agent, and duration of the company. Choose limited or perpetual duration as required. New Mexico does not require the names of the owners so names are not in the public record. The head office mailing address can be anywhere in the world. Changes in ownership need not be specified publicly. This is an important advantage in forming a company in New Mexico. It is not compulsory to live in New Mexico to establish your asset protection plan with the use of an LLC; it is enough to have a registered agent in New Mexico. A New Mexico company is a useful structure for holding assets
In North Dakota, the homestead exemption is the simplest way to protect a primary residence from creditors. North Dakota allows up to an $80,000 exemption to homestead and life insurance arrangements.
Establishing business in the form of an LLC can offer substantial benefits. An LLC reduces the possibility being sued. An individual can make use of a company to provide a degree of asset anonymity. A company makes it more difficult for creditors to collect on a judgment and minimizes the financial and emotional risks of lawsuits. Moreover, LLC is the most flexible way to operate a business.
An effective asset protection plan in North Dakota enables an individual to control assets without connecting them to identifiers like a name or social security number. Individuals can own the assets in the name of a company. It is advisable to make the assets unattractive to the litigation. Transferring assets to a trust or company can protect them from claims. Creditors need a court charging order to gain debtor assets held in the trust.
South Dakota’s laws regulating asset protection are complex so an experienced lawyer’s advice is required
South Dakota offers insurance, retirement accounts, business entity, gift, and trust options. It is very simple to establish a trust in this state. There is no finite duration in South Dakota to form a trust, so the state’s laws let your beneficiaries continue to enjoy protection from creditors. Therefore the assets transferred to a trust can be safely passed to future generations.
The state does not require filing trust documents publicly. Filing updates and informing the South Dakota court about changes in your trust is not required. State law offers only one remedy to creditors: a charging order against your interest. If the creditor sues you successfully the creditor will not be entitled to receive any distributions from the trust. In addition to these benefits, South Dakota provides relief from state taxes and capital gains taxes.
Texas is renowned for its strong asset protection and excellent company laws. The homestead exemption is the best-known asset protection law in Texas. When buying a home it’s preferable to pay cash. Cash invested in a home can be protected from all creditors using a homestead filing.
IRA, 401K plans, life insurance, and pension plans are exempt in Texas which provides asset protection. This maximizes contribution to retirement and pension accounts to increase asset protection against creditor claims. Divide spousal community property into separate property. A creditor can only take the separate property in the sued party’s name to satisfy his claims. Not dividing community property exposes property of both husband and wife to a judgment creditor.
Placing assets in a company is one of the most effective asset protection strategies available in Texas. Asset protection professionals recommend this strategy partly because companies are easy to incorporate in this state. A company offers an excellent liability barrier and privacy. If you want to achieve maximum anonymity have an attorney act an organizer, member, and registered agent and transfer your membership to the attorney confidentially. This technique avoids your name becoming a part of the public record. Using an attorney makes information between you and your attorney private and confidential through attorney client privilege.
Family limited partnerships (FLPs) can also be established for asset protection. An FLP should be filed with the state and you must provide information about ownership. An in-state registered agent must be nominated to receive service of process in case the partnership is sued.
In 2003 the Utah legislature enacted the Section 25-6-14 to assist Utah settlors to create self-settled trusts.
The law of Utah provides that settlers can transfer their property to a trust to protect assets from creditors. In Utah, the trust must have one trustee who is authorized to transact the trust’s business.
Utah has also adopted the fraudulent transfer rules (Uniform Fraudulent Transfer Act). Under this act, the transfer of any property is void if it is made to defeat the creditor’s claims.
The asset protection rules in Utah do not require a solvency affidavit but they provide protection from liabilities to attorneys for assisting the protection of assets. A trust in located in a different jurisdiction can be transferred to the state of Utah. To transfer a trust in Utah, the company must be the trustee and the trust cannot be administered in any other country. Utah’s asset protection statute disallows spendthrift in many situations.
The laws of Utah give protection to the owners of a limited company, corporation, and limited partnership from the liability of the entities.
A company or corporation in Wyoming offers directors and officers some of the best asset protection in the US. The state has less rigorous reporting procedures, no business license requirements, no state taxes, and minimal disclosure requirements.
Doing business as a company or corporation in the state of Wyoming provides privacy and asset protection. The state has strong laws to protect members and officers of a company making it a good place to establish a company.