By Monica Edwards, Esq.

America is the most litigious society in the world. It is said that a lawsuit is filed in this country every 3 seconds. In fact, the FBI has identified a sub culture of litigants looking to sue you by way of frivolous lawsuits. Also, on the rise in recent years, is a sub group of individuals looking to scam you out of your assets through identity theft and other criminal schemes. In today’s society, asset protection is no longer an option, it is a necessity.

If you are involved in business, have real estate investments and/or have other investment assets, and you want the peace of mind that comes with knowing you have done all you can to protect those assets, you must take proactive steps now.

The importance and significance of devising and implementing an asset protection strategy early on (before creditors or scammers come knocking at your door or before you are aware of a lawsuit) cannot be overstated. By doing so, you ensure a stronger fortress of protection around your assets. If you wait until trouble is on the horizon or after scammers have identified and targeted your assets, chances are it’s already too late.

Once you’ve made the decision to develop and implement an asset protection plan make sure it’s done right the first time. Talk to a qualified attorney who can assist you with developing a structure. The structure you choose to implement and the maintenance of that structure can provide a lifetime of protection for you and your loved ones for generations. There are some very practical, common sense tools available. Everyone should consider incorporating one or more of these tools into any basic asset protection plan; they are as follows:

Homestead Exemptions: A homestead protects a certain dollar amount of equity in a person’s primary residence. In Arizona this amount is $150,000. In Texas and Florida this is an unlimited dollar amount. Each state is different.

Liability Insurance: Insurance is your first line of defense. You will want coverage on your automobile, house, business and rental real estate assets. You should also consider purchasing “umbrella” coverage to provide additional coverage. Although insurance is the first line of defense, insurance companies have an economic incentive to not cover your claims. Be sure you read your policy carefully so you know what the policy exclusions are. Further, many times insurance companies go out of business or leave the state. This is why you need the second line of defense, which is asset protection planning.

Trusts: Trusts have been around for a very long time and have been used as a traditional technique for protecting assets. The types of trusts available are numerous and not all trusts offer asset protection, but many do. Every trust is established for a specific purpose, and that purpose will dictate the form and the basic provisions of the trust.

Business Entities: Corporations, limited liability companies (LLCs) and limited partnerships (LPs) are business entities that were created for asset protection purposes. There are several advantages to using these very affordable structures, such as:

1. Shielding Personal Assets From Business Risks
By using one or more entities you can conduct business and shield your personal assets such as your home and bank account from claims against the business. This is a far superior way of doing business versus using a sole proprietorship or general partnership, which offer no asset protection.

2. Shielding Business and Real Estate Assets from Personal Judgments
With the proper asset protection planning you can shield your valuable business, real estate and investment assets from claims brought against you as an individual.  A creditor may have a difficult time reaching your business and investment assets if they are held in the right entities, which offer charging order protection.

3. Avoid Veil Piercing Claims with Proper Formalities and Record Keeping
To maintain the limited liability protection afforded corporate entities certain minimum formalities must be met. These include filing statements and paying annual fees, maintaining a resident agent, keeping corporate minutes, maintaining separate bank accounts and avoid commingling personal and business assets. Failure to follow these formalities and others can result in personal liability to officers, directors, shareholders and members.

There are a host of other tools available depending you your individual goals and circumstances; please contact a qualified attorney at Davis Miles, PLLC today for your consultation (480) 733-6800.