Creating a comprehensive wealth protection plan requires a combination of a variety of strategies, which include business entities, basic and foreign wealth protection trusts, insurance, pre-nuptial agreements, and exempt assets.
Most of your assets can be protected with domestic limited partnerships or limited liability companies, basic trusts, insurance, pre-nups, and exempt assets as the basic building block of the comprehensive plan. As you will recall from previous sections, if structured properly, these entities provide good protection from creditors. All but the most determined creditors will be deterred by these entities, so some people might opt to not include foreign wealth protection trusts into their comprehensive wealth management plan.
As your assets grow and become more sophisticated, you will to incorporate foreign asset protection trusts into your plan. As well, you should create more entities per the “divide and conquer” philosophy.
When putting together a bulletproof asset protection plan, we generally suggest a 20-30-50 ratio whereby business owners keep at least 20 percent of assets available to creditors, 30 percent hard to reach, and 50 percent untouchable.
· Available assets (20 percent) can consist of such things as home equity, vehicles, checking accounts, passbook savings, jewelry, and the like.
· Hard to reach assets (30 percent) might consist of domestic business structures, basic trusts, and certain exempt assets.
· And untouchable assets (50 percent) would be foreign asset protection trusts and certain exempt assets.
Before considering some of the strategies for putting your plan together, let’s consider some of the critical mistakes people make when devising their plans:
1. Fraudulent conveyance, the transfers of property or assets with intent (or perceived intent) to delay or defraud creditors. In California, fraudulent conveyance is a criminal act, though in all other states, it is considered tried in civil court
2. Funding it too late. The ark must be built when the seas are calm. Failing to establish asset protection strategies in advance constitutes fraudulent conveyance. If you wait until a lawsuit or divorce is on the horizon to build your asset protection plan, the courts can pierce the protective shields and seize your assets.
3. Not using an independent trustee. A trustee is the person who carries out the wishes of your trust. We often see situations where the trust gives specific rights and responsibilities to the trustee and the trustee violates it. If a trust says money cannot go to the grantor, and the trustee direct money to the grantor, the entire plan could be set aside by the courts.
4. Giving your minor children interest in your business. Despite advice from so-called experts, who say that giving your minor children interest in your business will reduce your tax burden, this strategy could not be more fraught with disaster. Giving your minor children control of the business trades one problem for another. In an attempt to reduce attacks from one creditor, you expose your assets to the future creditors, business partners, and spouses of your children.
5. Not understanding your insurance policy. Your insurance plan is intended to protect you and your assets. By failing to understand its provisions, exclusions, and coverage, you expose your assets and family members to your insurance policy’s limitations. Understanding your policy means that you can patch holes in the policy with band-aids, create an additional layer of protection through trust mechanisms, or replace the policy entirely.
6. Failing to keep accurate records. Keeping inaccurate records suggests that your business is not on the up-and-up. Because a fail-proof asset protection plan is complex and multi-tiered, it must be supported by immaculate records to withhold court scrutiny. As you are about to see, the complete plan covers you from all sides. Make sure your records match the intentions of the mechanisms designed to protect you.
7. Hiring advisors who do not subscribe to the Contrarian Wealth Protection and Risk Management Philosophy.
On the following page is a diagram of a comprehensive risk-management plan for Alan Whitmore. Because of the complexity of many of the arrangements, only the main points are highlighted.
Alan Whitmore’s Assets
Cash and Equivalents $1,200,000
Municipal Bonds $1,000,000
Retirement Plans $1,400,000
Commercial Property $1,800,000
Family Business $2,500,000
Life Insurance $500,000
PERSONAL USE ASSETS
Personal Residence $1,000,000
Vacation Home $750,000
TOTAL ASSETS $10,725,000