Asset Protection

Asset Protection

In this day and age, we all must pay attention to our family or companies assets. Each year, 15 million civil cases are filed in the U.S. Unfortunately; many people are looking to come across a big paycheck, resulting in frivolous lawsuits. In countries other than the US lawsuits are handled differently. For example, in other legal systems, the loser in a suit must pay a large portion of the winner’s legal fees, which encourages litigants to exercise more caution. In the U.S., each party pays their own fees, giving people less of an incentive to be careful with lawsuits.

Trust Benefits:

These are just short summaries of each advantage, for more details on how they work and how to specifically use them you may want to get our book, take our course or schedule an appointment.

  • Privacy. By using a Trust no, one knows you own a property. No one knows how much a person has in the bank or what stocks or bonds you own; why should all your property be public record? There is no public record of the properties you own in Trusts. This means creditors, ex-spouses, tax authorities, lawyers and others do not know you own the property and will be less likely to be able seize it.
  • Keep purchase price secret. By using a Trust, you can keep your purchase price of the property secret
  • Keep sale price secret. By using a Trust, you can keep your sale price of the property secret.
  • Ease of short-sale purchases. When trying to buy a short sale property from an owner, if you get them to deed it to a trust, you can take control without paying documentary stamp taxes, and they might be able to avoid some of the problems with a foreclosure such as a deficiency judgment.
  • Keep change of ownership private. When you sell a property in a Trust, you can sell the beneficial interest of the trust, rather than conveying by deed. This way no one knows the property has been sold.
  • Protection from judgments. Judgments filed against you in the property records, including deficiency judgments in foreclosure cases on other properties, are liens against any real estate that you own, except property owned through Trusts.
  • Protection from liens. Liens filed by the IRS and other government entities do not attach to property that you own in Trusts.
    Avoiding deficiency judgment. If you expect your property to be foreclosed, you can deed it to a Trust and the foreclosure will then need to be filed against the trustee. If you are not easy to find for service of process, the case may proceed without you being a party, meaning no deficiency judgment against you.
  • Avoiding condo and homeowner association judgments. Some people who have lost their property in foreclosure to a bank have judgments for thousands of dollars entered against them for unpaid association fees. This could be avoided if the property was owned by a trust and not in their name.
  • Avoiding probate. When you die you can have your trust property instantly go to whomever you name in your Trust. No probate, no delay, no lawyers.
  • Avoiding lawsuits. Lawyers are eager to sue people who own lots of property. If it doesn’t look like you own much property it is less likely someone will sue you. Or if they do sue you there is a better chance they will accept settlement with your insurance company than go after property they don’t know you own.
  • Ease of control. When you have several partners owning a property, a Trust can allow you to manage it more easily.
  • Ease of management. When you are dealing with tenants, you can position yourself as merely an agent of the trust. This allows you to sympathize with their problems while insisting that they comply with the lease.
  • Ease of negotiation. When buying or selling property for a Trust you can set strict rules for the trust and then present yourself to the buyer or seller as the good guy, wanting to make the deal, but limited by the trust.
  • Improved financial statement. When you have mortgages in your own name the amount of debt goes on your financial statement and if you have a high debt ratio you may look like a bad credit risk. When a property is in trust the mortgage can be in the name of the trust alone and you can list only your equity on your financial statement.
  • Saving on title insurance. If you sell the beneficial interest in a Trust, rather than deed the property, you do not need to get new title insurance.
  • Ease of transferability of interests. With a Trust you can transfer fractional interests in a property with a quick signature, rather than needing a notarized deed.
  • Simplification of making gifts. Interests in Trusts can be made as gifts to family members to take advantage of the gift tax exclusions.
  • Limiting liability. By having a Trust sign notes and mortgages you can limit your liability for a default judgment if there ever is a foreclosure.
  • Avoiding partition. When a property is in a Trust a disgruntled partner or heir of a partner can’t force the property to be sold.
  • Ease of foreclosure. When you sell the beneficial interest it is possible to take it back more easily than if you sold the land and took back a mortgage.
  • Safer Lease/Options. Unlike a regular lease/option where a tenant can get a vested right to the property, a lease option through a Trust can be structured to keep the option from vesting until the tenant has built up substantial equity.
  • Avoiding seasoning problems. Some lenders won’t loan on a property if it has not been owned a certain length of time, such as six months or a year. When a property is in a Trust it can be sold several times but the ownership on the public records remains the same butting up seasoning.
  • Loaning money. If you wish to loan money to someone, one form of security you can have is to have them deed it to a Trust and make you the director. That way you would have control of the property until you were paid.
  • Holding judges’ property. Judges are allowed to own interests in Trusts without violating ethical rules.

Types of Trust

Asset protection is the positioning of assets to make it legally unreachable by creditors. Many people have the wrong impression that asset protection is the same as hiding assets or evading taxes but this is not true. Asset protection helps you avoid “unnecessary” liabilities Consider asset protection as a form of economic self-defense to shield against financial predators.

  • Trust, n. 1. The right, enforceable solely in equity, to the beneficial enjoyment of property to which another person holds the legal title; a property interest held by one person (the trustee) at the request of another (the settlor) for the benefit of the third party (the beneficiary). For the trust to be valid, it must involve specific property, reflect the settlor’s intent, and be created for a lawful purpose. The two primary types of trusts are private trusts and charitable trusts. 2. A fiduciary relationship regarding property and charging the person with title to the property with equitable duties to deal with it for another’s benefit; the confidence placed in a trustee, together with the trustee’s obligations toward the property and the beneficiary. A trust arises as a result of a manifestation of an intention to create it.
  • Charitable trust. A trust created to benefit a specific charity, specific charities, or the general public rather than a private individual or entity. Charitable trusts are often eligible for favorable tax treatment. Also termed public trust; charitable use.
  • Active trust. A trust in which the trustee has some affirmative duty of management or administration besides the obligation to transfer the property to the beneficiary. – Also termed express active trust; special trust; operative trust.
  • Passive trust. A trust in which the trustee has no duty other than to transfer the property to the beneficiary.
    Also termed dry trust; general trust; nominal trust; simple trust; naked trust; ministerial trust; technical trust.
  • Grantor trust. A trust in which the settlor retains control over the trust property or its income to such an extent that the settlor is taxed on the trusts income. An example is a revocable trust.
  • Private trust. A trust created for the financial benefit of one or more designated beneficiaries rather than for the public benefit; an ordinary trust as opposed to a charitable trust. Three elements must be present for a private trust: (1) the demonstrated intent of the settlor, (2) trust property (as res), and (3) a certain beneficiary capable of enforcing the trust.
  • Secret trust. An instrument, usually a will that appears to give an absolute gift to another although the donee has orally agreed with the grantor that he is to use the property for the benefit of some third party. Courts admit evidence of the promise to prevent unjust enrichment and enforce it by imposing the remedy of a constructive trust upon the reneging “trustee.”
  • Company. 1. A corporation – or, less commonly, an association, partnership, or union – that carries on a commercial or industrial enterprise. 2. A corporation, partnership, association, joint-stock company, trust, fund, or organized group of persons, whether incorporated or not, and (in an official capacity) any receiver, trustee in bankruptcy, or similar official, or liquidating agent, for any of the foregoing.
  • Association. 1. The process of mentally collecting ideas, memories, or sensations. 2. A gathering of people for a common purpose; the persons so joined. 3. An unincorporated organization that is not a legal entity separate from the persons who compose it.
  • Person. 1. A human being. – Also termed natural person. 2. The living body of a human being 3. An entity (such as a corporation) that is recognized by law as having the rights and duties of a human being. In this sense, the term includes partnerships and other associations, whether incorporated or unincorporated.

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