Asset protection is the process of organizing your assets in a manner that safeguards them from exposure to risk. Who needs asset protection? Anyone with equity in a house, significant cash, or who expects to inherit a large retirement plan. Who can benefit from the assistance of a Fairfax asset protection attorney? Everyone.
In a perfect world, there would be no need for asset protection. But in today’s victim-oriented society, where people seem to sue one another over just about anything, we are vulnerable every time we drive a car, hire an employee, perform a service, or even have a guest at our home or business.
When you think about asset protection, ask yourself some questions:
Many people think because they have a revocable trust that their assets are protected. They’re not. A revocable trust protects the assets of the next generation but not yours. You need a different type of trust and it begins with an Asset Protection Analysis™ from Rhonda A. Miller.
During an Asset Protection Analysis™, Rhonda looks at what you own, how it is titled, the amount and type of insurance you have purchased, then advises you on ways to protect your assets. Depending on your specific situation, she may recommend one or more of the following Asset Protection strategies:
Domestic Asset Protection Trust (DAPT) is an irrevocable trust in which the grantor is designated as a permissible beneficiary. That means that once the trust is set up it cannot be changed. The person who sets up the trust (Grantor) is allowed to be a beneficiary. DAPTs are usually combined with Limited Liability Companies in the same jurisdiction. The Grantor and other beneficiaries have access to assets in the trust. However, if you live in a non-DAPT state the assets that come out of the DAPT would be subject to creditors of that state.
Virginia has a DAPT statute. Maryland, DC and CA do not. Some states have laws that say they will not honor DAPTs. It is very important if you are interested in setting up a DAPT you work with an experienced attorney knowledgeable in this area and familiar with the state statutes.
One of the easiest assets for a creditor to attach is an after-tax investment account or a bank account. Our experience is clients get notice on the same day the money is removed from the account.
Putting after-tax investment accounts or bank accounts with large amounts in them into LLCs in states with charging order protection may keep a creditor from getting its hands on your money.
There are several jurisdictions that say a creditor of the LLC only gets a charging order.
A charging order is a lien. If you do not take any money out of the LLC the creditor gets nothing. The creditor has NO right to force you to take money out of the LLC. This is where jurisdiction is very important. In some states the law gives the creditor the right force you to take money out of the LLC and pay the lien.
Again, it is very important to work with an attorney who is very experienced in this area to properly set up your LLC in the right jurisdiction. Moreover, it is equally as important that the operating agreement be written properly to uphold against the statute and case law of the chosen jurisdiction.
It is possible for a married couple to own real property and financial assets in tenancy by the entireties. Tenancy by the entirety provides assets protection because only a creditor of both parties can come after an asset held in tenancy by the entirety. Tenancy by the entirety is only available to married couples.
If you are interested in holding financial assets in tenancy by the entirety, make sure that the company allows it. For example, there are situations where the title to the account was changed to tenancy by the entirety, however, when one person had a creditor problem, they learned that the financial institution did not allow the title to be such and really just considered the account to be in joint tenancy. Therefore, there was no asset protection and the creditor could reach the account.
Some pitfalls with tenancy by the entirety are that it terminates with death, also divorce, and lately we see more judge’s ruling in favor of creditors.
If most of your assets are joint, then you are very likely to have a joint creditor. Here is another example. The husband is in a bad car accident. The damages exceed his insurance. There is a judgement for the injured party. The injured party cannot collect against the house but then the wife dies. The injured party can collect against the house.
Tenancy by the entirety has also been set aside in bankruptcy. While it is a good first step, an asset protection trust offers stronger protection.
Investment accounts with after-tax money in them or bank accounts with large amounts of money in them are easy for a creditor to get at once there is a judgment. It is important to protect those assets. Asset protection trusts can help protect all of your assets from a potential creditor.
If you want to own property with another person and you are not married, what are your options?
Joint tenancy has a right of survivorship. That means the asset will automatically pass to the surviving owner. That is a pretty good option for a lot of people. Joint tenancy also means that a creditor or either owner can take the entire asset. That is generally not a good thing. Many parents put their children on the title of their house not realizing that a creditor of their children can take their house.
There is no right of survivorship. In this type of ownership, you own a set percentage. If the two parties each own 50% then you each own an undivided 50% interest. You are able to leave that interest to whomever you choose. You can even put your share in a trust. Generally, creditors are not interested in assets owned by more than one person unless debtor does not have assets in his or her own name. The creditor can only place a lien on the asset. They cannot force you to sell. However, a creditor will put a lien on a piece of property owned by more than one person. Owning an asset in tenancy in common is NOT asset protection.
If you have questions regarding joint assets, it is important to seek help with an experienced Fairfax asset protection attorney. Your lawyer can fully explain your options and the best course of action to take regarding your individual situation.
There is a certain amount of statutory protection for some of your assets. The statutory protection is provided by state and federal law. The following is a non-exclusive list:
Retirement Account Assets: Assets such as IRAs, Roth IRAs, and 401ks and other qualified retirement plans are protected under Virginia and Federal law from creditor claims. Note, the Supreme Court ruled that these accounts are not IRAs and therefore not entitled to the statutory protection. If you are concerned about making sure an inherited IRA is protected, Fairfax attorney Rhonda Miller recommends that you set up an IRA Trust. If you do that the money can still be stretched out and it is protected.
Annuities: Annuities are protected from creditors.
Life Insurance: The proceeds from life insurance is also protected.
Spendthrift Provision: If you have a spendthrift provision in your trust, money left to a person (children, grandchildren) as long as it stays in trust is protected from creditors. If the money is taken out of trust it is not protected from creditors.
Tenancy by the Entirety: Tenancy by the entirety also provides statutory protection of the asset held in tenancy by the entirety from a creditor of just the husband or the wife.
The exemptions provided by law are fairly limited. Notice what is not protected:
Rhonda is experienced with Asset Protection planning and can help you map out a strategy that will safeguard your assets. Visit the Asset Protection FAQ page for additional information. To learn how a Fairfax asset protection attorney may be of service to you, contact Rhonda using the form on the right, or call 703-442-3890 today.