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Asset Protection
Old 07-30-2009, 06:12 PM   #1
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Asset Protection

I just read that 65% of American millionaires have no asset protection plan.
Let's say someone has several million dollars that they would like to protect against frivolous lawsuits, as well as lawsuits related to professional liability. Is it possible to open a corporation or other business entity that would hold this amount of money and trade this money in stocks? Since a corporation is a different legal entity, it should not be available for lawsuits except for lawsuits directly against the legal entity, and since it is just involved in the stock market and no other business transactions, there shouldn't be any other reason for it to be sued. Is this correct?
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Old 07-30-2009, 06:31 PM   #2
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It's extremely dependent on state law. Often forming LLC for separate assets (often rental real estate) can be in order.

In Texas, for example, homesteaded personal residences, retirement plans (401K AND IRA), insurance policies and annuities are 100% protected from creditors or litigation. So what makes sense in Texas (sometimes even annuities!!!!!!!) might not make sense in another state with less generous asset protection laws.

Here's a good place to check on state by state laws; I don't know when it was last updated so it might be dated.

http://www.assetprotectionbook.com/state_resources.htm

In terms of asset protection, Florida, Oklahoma and Texas lead the pack.
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Old 07-30-2009, 09:27 PM   #3
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Quote:
Originally Posted by inquisitive View Post
I just read that 65% of American millionaires have no asset protection plan.
Let's say someone has several million dollars that they would like to protect against frivolous lawsuits, as well as lawsuits related to professional liability. Is it possible to open a corporation or other business entity that would hold this amount of money and trade this money in stocks? Since a corporation is a different legal entity, it should not be available for lawsuits except for lawsuits directly against the legal entity, and since it is just involved in the stock market and no other business transactions, there shouldn't be any other reason for it to be sued. Is this correct?
Presumably, you would hold an ownership/equity interest in this separate "asset protection entity". If I sued you personally and obtained a judgment, I would execute against your ownership/equity interest. Then, I would be the owner of the entity and all those millions would belong to me.

There are asset protection structures available, but they are far more complicated than your example, require high-priced legal help to set up and still may not end up protecting your assets. Your best bet is to have a good umbrella policy and be cautious.

If you are really interested in pursuing this, you should consult a properly qualified attorney in your own state.
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Old 07-31-2009, 12:32 PM   #4
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Quote:
Originally Posted by inquisitive View Post
I just read that 65% of American millionaires have no asset protection plan.
Let's say someone has several million dollars that they would like to protect against frivolous lawsuits, as well as lawsuits related to professional liability. Is it possible to open a corporation or other business entity that would hold this amount of money and trade this money in stocks? Since a corporation is a different legal entity, it should not be available for lawsuits except for lawsuits directly against the legal entity, and since it is just involved in the stock market and no other business transactions, there shouldn't be any other reason for it to be sued. Is this correct?
Corps (LLCs are commonly use to do this), doesn't protect you from you.
Most commonly used to hold rentals, 2 examples to illustrate, you have
a rental house in an LLC:
1. you hire a license contractor to build steps, the steps collapse, the
injured sues the LLC and the contractor because they share responsibility.
IF you finance the house, you only lose your equity, they get the
house and the mortgage that goes along with it.
2. you build the steps yourself or you hire a couple of college students to
build them, in either case you are deem responsible because either you
built them yourself or you failed to do due diligence and hire a license
contractor, you are deem responsible. They sue you, which means they
can get all your assets including any corporations you own.

In most states your retirement assets are protected and many your
house is protected (Florida). So if you are a Doctor in Fl, you max out
your retirement assets (401K, annuities, IRAs) and buy the biggest
house you can afford and put your practice in a LLC in case another
doctor/nurse in your practice screws up.
TJ
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Old 07-31-2009, 12:38 PM   #5
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Originally Posted by teejayevans View Post
In most states your retirement assets are protected and many your house is protected (Florida). So if you are a Doctor in Fl, you max out your retirement assets (401K, annuities, IRAs) and buy the biggest house you can afford and put your practice in a LLC in case another doctor/nurse in your practice screws up.
Texas is pretty much the same, as is Oklahoma.

As much as there is a lot of negativity toward annuities here, there ARE a few people for whom they make sense. A high-income, high net worth individual in an occupation likely to be sued would be such a good candidate for a low cost deferred annuity presuming they were very concerned about asset protection and they've maxed out all their other 401K and IRA-type options. That would also be true in Texas and Oklahoma as well as Florida.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
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Old 08-01-2009, 03:58 PM   #6
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Not sure if this applies to you but.....

As an individual, I am protected from frivolous lawsuits because I've purchased an Umbrella policy from my insurance carrier. According to my agent, any lawsuit (in which I'm found liable) will be paid up to a mill by my insurance carrier.

So far.... it has not been tested - knocking on wood!
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