Asset protection is not just for the wealthy any longer. When a middle class home can easily run a half million dollars in Florida or another state, and over a million in California or other state, anyone can become a target of lawsuits, divorce courts, and the IRS. You have to dig a well before you are thirsty, or in this case, build a legal fortress before invading barbarians reach your gate.
Your tools to protect your assets are:
- “no asset” C corporation
- Limited liability company (LLC)
- Beneficiary controlled trust
- A “no asset” C corporation will be the management company for your LLC. The two work together to protect your property from those who would take it from you.
- You are employed by the C Corp, not the LLC. You can also be the sole shareholder and hold all of the officer positions. Your corporation owns nothing but a checkbook.
Your corporation can pay for:
- medical insurance for the officers
- life insurance ($50 thousand limit)
- retirement plan
As an officer, you can be reimbursed for out-of-pocket medical expenses through a medical expense reinbursement plan (MERP).
Entertainment expenses directly related to the business can include:
- training expenses
- computer expenses
- phone expenses
- business gifts up to $25 per recipient
- Never let your corporation pay for personal items. Commingling of funds could pierce the corporate veil and make you personally liable for corporate debts in the event of a judgment against the corporation.
- Consult your CPA or tax advisor for the latest changes in allowable deductions.
- Your limited liability company is where you earn your income. Your LLC should also own any vehicles, equipment, computers, copiers, printers, and real property.
- You want your Operating Agreement to make your corporation the Manager of your LLC.
- Your LLC should also pay the bulk of your operating expenses for your office, supplies, travel, fuel, utilities, phone, computers, and more.
- Your interest in the LLC will be as a 99% member will be owned by the trust.
Beneficiary Controlled Trust
- A beneficiary controlled trust is the crown jewel of asset protection.
- While I will not go into detail here, a BCT works like this:
- Someone other than yourself establishes an irrevocable trust with you as the beneficiary and as the Investment Trustee. A second entity or person is required as the Distribution Trustee.
Charles Lamm’s company, _________Services, Inc., can act as your Distribution Trustee if you want to keep your affairs private from your friends and relatives. __________ to take advantage of Florida’s excellent trust laws, as well as no state income tax.
- The Grantor can put up to $12,000 per year into the trust without gift tax considerations, and you have an immediate right to withdraw the money as it is a Crummey defective grantor trust.
- It’s complicated, but the idea is to leave the assets in the trust and use the trust to own the LLC and to take care of your needs.
- The trust can purchase property, pay for your education and medical expenses, and take care of your physical well-being. You have full control over the trust assets without actually owning anything.
- As the Investment Trustee, you control how the assets are used, and you can replace the Distribution Trustee at any time.
- You are now isolated from lawsuits, creditors, judgments, ex-spouses, and the IRS.
- Location within Broward and the state of Florida
- Location within Broward and the state of Florida (Photo credit: Wikipedia)
- Charles Lamm is a retired attorney who owns Trustee and RA Services, Inc., in Coral Springs, Florida. His asset protection blog can be found at http://trusteeandraservices.ml