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An asset protection strategy helps preserve and protect your assets from creditor claims. A creditor may attempt to take your assets by garnishing your bank accounts, property liens, or foreclosure. The following is a list of asset protection strategies to help you avoid frivolous lawsuits and creditor claims. We also offer some tips for creating your asset protection strategy.

Key Takeaways

  • An asset protection strategy defends you from creditor claims by keeping you anonymous and making your business appear as a liability rather than an asset.
  • The biggest risks from creditors include garnished accounts, property liens, and foreclosures following a judgment.
  • An asset protection strategy can help shield your business and personal assets.
  • Transferring your funds to a separate limited liability company (LLC) shields your identity and assets’ value.
  • Stripping equity from personal and business real estate investments makes your assets appear less valuable, which can reduce creditor claims and lawsuits.
  • Some states, like Wyoming, allow you to stay anonymous when creating and filing an LLC.

What Is an Asset Protection Strategy?

An asset protection strategy is a plan that shields your personal and business assets from creditors or lawsuits. Devising a plan can reduce your liability and prevent issues from diminishing your personal wealth. Transferring or retitling assets helps you stay anonymous by shielding your identity. The best asset protection strategy depends on what you own, your finances, and your location.

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The Biggest Risks to Your Assets

The biggest risks to consider when protecting your assets include the following:

  • Bank account garnishment: A writ of garnishment allows creditors to collect money after a judgment. The judgment often allows the creditor to withdraw funds from your checking or savings account.
  • Real estate lien: A real estate lien is a legal claim that gives creditors interest in your personal or investment property. When there’s a lien, you can’t sell or refinance your property until it clears.
  • Foreclosure: If a creditor gets a judgment on you, they may foreclose on your property. A foreclosure forces you to sell and directs any earned capital to pay off your debts.

An asset protection strategy can protect you from all these issues.

How Does an Asset Protection Strategy Stop Creditor Claims?

An asset protection strategy stops creditor claims by keeping you anonymous and making your personal and business assets appear indebted. Here are a few ways an asset protection strategy stops credit claims:

Shields Personal Worth

Creditors are less likely to pursue legal action, like liens, if you have minimal personal wealth. Moving personal and business assets into a different entity shields you from their liability and value. While you can still access the assets, creditors cannot garnish or place a lien on these accounts.

An asset protection strategy also prevents business liabilities from affecting your assets. An unprofitable or unexpected business debt might otherwise threaten your residence, retirement accounts, or savings. Creating multiple LLCs can protect individual business endeavors, preventing an unsuccessful business venture from affecting your more successful ones.

Displays Indebtedness to Creditors

If you owe a substantial amount of money, creditors may not act against your assets. You can file a lien against one of your businesses using a separate business entity. A friendly lien may prevent frivolous lawsuits by shielding the profitable assets within your business. However, to use this strategy, it’s important to note this process requires you to back the lien with the loan amount.

While having a large loan with your own LLC may prevent you from borrowing additional funds from banks or other lenders, you can typically dissolve the filing later.

Separates You From Your Assets

Asset protection strategies aim to separate your identity from your assets. You avoid creditor garnishment by removing your name from your accounts, including personal savings and checking accounts. Most state laws allow you to move personal funds to your LLC bank accounts, which can shield your identity from creditors.

After creating an LLC to hold your personal assets, you become the manager. This gives you complete access and control over your funds, just as if they were in your personal checking account. Creditors are only able to collect from your personal accounts.

Transfers Property Ownership to a Trust

Trusts can also help protect your assets. Real estate property may be one of your most valuable assets, so it’s important to protect it. Creating a personal resident trust (PRT) allows you to assign the property’s ownership to another LLC as the beneficiary. This process shields your identity from the public. If a creditor or lawyer attempts to research who owns the property, the title will show your LLC rather than your personal information.

Creating a trust is an excellent strategy for protecting your residence. If someone were to file a complaint against you with the local county, your real estate assets would no longer be included. You can also protect stocks, savings, brokerage accounts, and any other assets of value in your newly formed LLC. The funds are easily accessible by writing a check or transferring them to a new account.

When creating an asset protection strategy, you can choose a revocable or irrevocable trust. A revocable trust allows you to make changes, while an irrevocable trust makes this more challenging. Trusts help protect your assets from creditors and can assist your estate planning. A trust allows you to assign beneficiaries to your assets while allowing them to avoid probate, an often expensive and time-consuming process.

Strips Equity

Available equity in a property may be appealing to creditors. For example, if you owe $150,000 on a property worth $500,000, lawyers, tenants, and creditors can use public information to identify the substantial equity available in your property, potentially putting you at risk. Stripping or removing that equity may make your business appear less profitable and valuable, reducing the chance of lawsuits. 

You have a few options for stripping equity. An equity line of credit is one, but there is often a limit of 60% of the property’s value. Another strategy is to use your LLC to file a deed of trust against your property. This deed is public, meaning anyone can see the original mortgage and other debts, but it doesn’t show the additional debt is a personal loan. This strategy makes your assets appear as a liability.

The important thing about these strategies is they’re legal. State and federal laws allow you to create an LLC to manage and hold your assets. Since some states allow you to create an anonymous LLC, which offers another layer of confidentiality, review local laws.

Additional Tips for Protecting Your Assets

Here are a few other tips for protecting your assets from creditor claims:

  • Limit available business cash: Keeping large amounts of money in your business puts you at risk of lawsuits. Moving your business funds to another LLC can make your business appear less profitable.
  • Move personal funds to an LLC: Creating an LLC strategy also works for personal assets. Rather than leave money in personal accounts, consider moving it to a separate bank account in the LLC’s name.
  • Transfer property: Business property, including vehicles or equipment, can also become a liability. You can transfer ownership of this property to an LLC.
  • Open a line of credit: A line of credit funded by personal accounts makes your business appear to have a lot of debt, deterring creditors from pursuing legal action.
  • Be strategic about forming an LLC: Some states allow you to shield your identity, keeping your LLC, debts, and business information anonymous to your creditors. You don’t have to live in a state to create an LLC there.
  • Work with a professional: These strategies can help protect your assets from lawsuits or creditors. However, simple mistakes can reduce the effectiveness of these protective strategies, making it essential to discuss your plan with a financial advisor.

Whether you want to protect your personal residence and bank accounts or worry about frivolous lawsuits against your business assets, an asset protection strategy is imperative. Creating a plan that keeps you anonymous and prevents others from garnishing your funds reduces your liability and helps you keep control of your assets.

Sign up for a tax and asset protection event today to learn more about these strategies. These events are a great way to learn the basics of asset protection while allowing you to ask questions unique to your situation. You can also schedule a personal consultation with one of our financial advisors at Anderson Advisors to create an asset protection strategy that best fits your financial situation and goals.

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