3 IMPORTANT Ways To Keep Your Assets Hidden From Creditors And Lawyers

Josh: Today, we’re going to talk about three things. We’re going to talk about three different ways to keep your name off of things or keep your assets anonymous, where your ownership of the asset is anonymous so creditors can’t find you.

Toby: I’ll just say, from doing this for 26–27 years, whatever it’s been, one of the most effective tools but not the only tool is making sure that people can’t see what you have so that you don’t inadvertently make yourself a target.

One of the beautiful parts about being wealthy and then people knowing it is that they like to try to take your stuff. If we can at least keep them from not knowing what stuff you have, or even whether you’re wealthy, that’s half the battle. The other half, of course, is actually having a plan that works, but we’ll go over that. Josh, three things we’re going over. Jump into number one.

Josh: Sure. The first thing, and it goes back to exactly what Toby just mentioned, is you want to control all of the stuff that you have and own none of it. What does that mean? That means that you want to own the thing that owns the thing.

What we do with asset protection structures in order to anonymize your ownership and control of the asset is we create business entities, usually LLCs, not always. You own the business entity, and then the business entity owns the asset. It could be any type of asset, it could be real estate, it could be equipment, it could be intellectual property, it could be anything, just a whole bunch of cash, whatever.

The way that you anonymize your ownership of this is by understanding how you can own the asset but not look like you own it. And that goes back to how you file the LLC. You don’t want to file your own LLC, because then your name is listed in the state database as the organizer, the person that set up the LLC.

You don’t want to list yourself as the registered agent, because then, even inadvertently, you’ve put yourself out there saying, hey, this is who I am, this is where I am, because registered agents have to have addresses. This is when I’m going to be there, because registered agents have to be available during business hours. And you don’t want any of that.

Instead, what you do is hire a company like Anderson to set up your entity, work as your registered agent, and list you as the manager of the LLC. What’s the difference between a member of an LLC and a manager of an LLC? It’s very simple. A member of an LLC is an owner of the LLC, while the manager could be anybody, it could be me, it could be Toby, it could be Tom, Dick, or Harry off the street.

Manager doesn’t equal owner, member does. Understanding that difference already puts you leaps and bounds ahead of creditors that are trying to figure out what you have to hold you liable.

Toby: I think it was very well put. Number one is making sure that the asset that somebody might want to take isn’t just sitting there in your individual name so that all they have to do is attack you. You want to make sure that you have control of something, but that it’s in a nice vehicle or vessel that protects it and more importantly protects you from it and it from you.

A lot of folks miss that second part where, hey, if I’m driving down the car, and I have a car accident, the last thing I want is to put all my other assets in jeopardy. There are ways to prevent that. Make sure that you’re not the one who’s got your name all over it. Having a third party like a lawyer, that’s what the wealthy do. The poor, unfortunately, love to go out, set things up, and make it really easy for them to be tracked. All right, that’s really well put. What’s number two?

Josh: Number two is just using the various strategies that you have available to you in a creative way to enhance the anonymity, enhance the protection. Remember, what we’re looking at here is if people don’t know what you have, they can’t attack it. They can’t go out and find it and find you by looking for your assets.

One thing that we talk about frequently—you’ve likely heard Clint Coons, one of the other partners here at Anderson talk about it—is using a land trust to anonymize the ownership of real estate that you have. He does a lot of other things as well.

How this works is you buy a piece of real estate and you transfer it into a land trust. With that transfer into a land trust, your name as the owner is off of the record. However, many times you still have to be listed as a trustee of the trust. How do we get rid of that? How does that play into this whole idea of anonymity?

The easiest thing to do in this situation is to use what we just talked about, having a manager of an LLC controlling the LLC, controlling the actions of the LLC, but not giving any hints as to who owns the LLC. What we do is we use these two strategies together. We create a land trust that’s going to own title to the property, and then we appoint an LLC as the trustee of the land trust. You just have to have a person under the law to serve as a trustee.

Entities are considered people under the law. They are separate legal formations that can make their own decisions, can have their own assets, can contract for things, can take debt, and can manage other entities like a land trust.

If you have someone create an entity for you where you are the manager of that entity, then you create a land trust and have the entity as the trustee or the manager of the land trust, and you are the manager of the LLC. Here, again, we’ve implemented the previous strategy just in a layered approach, where you still control all of those assets, but nobody can see that on a publicly available record that you control that asset.

It’s a variation on a theme, but it’s an important one because it shows that as you start to understand the legal principles behind things or work with people that do, what you can do is put structures in place that from an outside perspective look very, very complicated, but from an inside perspective it all just lands with you controlling everything in different ways.

Toby: The structure that you just laid out there and may not even have an extra tax return. For example, it could have zero impact on you having to do anything from a tax standpoint. The very structure you laid out there may cost a state filing fee once a year on the LLC, the land trusts are nothing.

From an outside standpoint, somebody looking at you, let’s say it’s a tenant, and let’s say you have 10 rental properties, they can’t see that you own 10 rental properties. Therefore, if something bad happens, like one tenant gets mad at you because you tossed him out, because they were dealing drugs, or because they were messing up the apartment or your unit, and there were molds in there, whatever, and they’re thinking of, I want to go get even with that landlord, they don’t go grab a lawyer who sees, oh, Josh owns 10 properties. Let’s shake that tree. There’s money that’s going to fall out of it. What they want to see is, oh, there’s really nothing to get here. Move on, next. That works really, really well.

Some folks don’t realize how well that works, but it’s ordinarily effective in preventing frivolous lawsuits and just not having to be annoyed. Or if you do get sued, it gets settlements done very, very quickly, because there’s no big win at the end of the day that they can see. We don’t want to underestimate that.

All right, Josh, what’s number three? You said there were three ways. I’m really curious, you just hit two. What’s the third way?

Josh: The third way is going to be important for all different types of asset classes. It’s splitting up ownership and use. What do I mean here?

Let’s take a construction company. Let’s take somebody who’s going out and developing land. They have earthmovers, they have dump trucks, they have excavators. They have lots of very heavy machinery that’s worth hundreds of thousands of dollars. No hyperbole there. That’s a very large target for somebody who has big machines that can cause a lot of damage to a lot of people. That’s a really big liability target.

Having all of those assets in one entity can cause a problem. In fact, I’m working with a client right now who just settled a lawsuit, because he had equipment that was used and unfortunately, somebody was injured that he had to settle. Gratefully, he settled, because he had his business structured in such a way with liability insurance that could cover that.

Because of his experience there, he’s come to us and says, how do I structure this better? How do I do this better? It’s very simple. All you do is you break out ownership and use of the property. Instead of having one LLC, where you have all of the construction equipment, all of the operations, and everything gets done in that one LLC, what you do is you have a separate LLC that’s owned in a completely different way over here, not with this LLC, that owns the bulldozer.

You have a separate LLC that owns the excavator. You have a separate LLC that owns the dump truck. You decide in consultation with a professional how many LLCs you want, what pieces of equipment you want, where, and you move the equipment from the current LLC owner, if this is your situation, into the entity working with other tax professionals and the like to move it in a way that’s not going to get you absolutely decimated on taxes, but you move that equipment over to other LLCs. And then you lease that equipment back to the use company.

That way, the company can still use all of the equipment that it needs to get the job done, but you’re getting money in to do the work. You’re being hired to do work to move earth, dig holes, what have you, great plan, and then you pay that money from this entity to another entity for the use of the equipment.

What does this do? First, it gets those large, very valuable assets out of the construction entity so that construction entity doesn’t look like a prime target, because it has hundreds of thousands of dollars worth of equipment sitting around that’s just waiting for someone to come after you.

Second, you get cash that would usually be sitting in that entity out of that entity. You still use it, you still control it, but it’s not here waiting for someone to come and get a judgment against you.

Some real estate folks might be saying, that’s all well and good, Josh, but how does this relate to what I’m doing? It’s the same thing. You have a property management company say that you enter into a property management agreement between the LLC that owns a property and that company, the same exact principle. The property manager stands out front, rents to tenants, gets the checks, remits payment from the tenants to the owning LLC. Same principle applies.

You see here that with one little tweak, it’s not a very difficult tweak. It doesn’t have a lot of tax implications, usually. Those tax implications are able to be planned around. You can protect a lot more of your assets.

Just like this client that I’m working with said, just having the discussion and knowing that there’s a strategy that we’re working to implement helps him sleep better at night. That’s great. That’s what we want. We want him to be able to do what he’s doing and not worry about someone coming after him and taking everything away.

Toby: I would reiterate a couple of things and maybe expand on it slightly of what you just said, because it is super effective. Where you’re dealing with third parties who you may have exposure to, you don’t want that to be sitting there holding a bunch of assets. That asset, as Josh has put out, could be equipment. It could be vehicles, it could be planes, it could be cash.

This is where it gets really interesting. For example, if I’m a landlord, you might be saying, oh, there’s no way to escape that liability. Actually, there is. The liability of the lessor who put that property into the public and is dealing with a tenant, and that tenant is using that property, if there’s a lien against it—in other words, I don’t just give it cash, but instead I loan it cash—now the exposure is the equity, not the entire value of that property anymore.

If I have a third party entity, maybe it’s my safe asset entity is what we call it, but it’s loaning the money over to one of my other LLCs, now all of a sudden my exposure is greatly diminished.

If I am a construction company just like Josh just eloquently put out, and I have $2 million worth of equipment, and something happens in that, they’re going to take my equipment. But if I have my equipment outside, then the party who is liable, equipment doesn’t drive itself. The liability is whoever’s the operator.

If I have an operating entity, and it does not own that equipment, there’s not the exposure to the equipment. That equipment is always safe. I don’t know about you. But if I’m running a business, and it has substantial assets, I’m worried about them taking the assets out of that business.

I’m happy to take the hit on the business itself if I did something. That’s what I carry umbrella insurance for. If they want to destroy my business, go for it, because I still have the assets separate. I could still resurrect and live to fight another day. But if I have them all in one basket, it’s easy for them just to take the whole basket. That means I’m out of business and I’ve lost my livelihood.

This one little nuanced, Josh, I want to put a fine point on this. I don’t want it to be underestimated. That little nuance there of isolating the asset from the entity that has that risk is so effective. Huge companies do it, Fortune 500 companies do it. You might remember Geoffrey from Toys R Us. He lived to fight another day, because they kept the intellectual property separate.

You’re seeing this over and over again play itself out in Wall Street, and the same thing applies to Main Street. You can set yourself up to where even if you have a hiccup, it doesn’t put you under for the duration. You’re still able to come and continue to operate, because God knows it’s hard enough to start a business. The last thing you need to be worried about is, hey, what if somebody knocks me out?

Is there anything else you want to hit on, Josh, because I think that those three points are very well taken and set straight?

Josh: I just have one last thing, and that is the importance of understanding what anonymity is and what it isn’t. I think a lot of people sometimes get the false impression that anonymity equals asset protection. That’s not the case. Anonymity equals a legal smokescreen that you can hide your assets behind so that you’re not easily found. That by itself stops a lot of lawsuits from coming and beginning in the first place.

The legal structures that undergird the anonymity are what we really want. That’s what’s going to protect your assets if a challenge does get through that smokescreen or in the event of a legitimate legal challenge. What you want is the structure undergirding the asset protection.

A lot of times, clients will say, well, I don’t want my anonymity to be jeopardized when they’re going to get a bank account. It’s important to understand, bank records aren’t publicly available. If they were, the banks would have a serious data violation problem that you could sue them over. They don’t want that.

You don’t have to be worried when you’re going to set up a bank account about anonymity. That’s not a publicly available record. However, when you’re going to file a deed, buying a property, putting a lien on something, or doing any of that, that is publicly available information. That’s when anonymity becomes important, to set up that smokescreen, to stop lawsuits from occurring. That’s what anonymity is about.

It’s just important to have that base level understanding so that you’re not worried about talking to anyone about your business. You can still do that. It’s just making sure that you understand the principles.

Toby: Yeah. Again, the way I always look at it is anonymity is a preventative measure. But if you’re in a battle, you still need to have the legal structure. There are a lot of folks out there, for example, in real estate, who are advocates of land trust, but they don’t marry them with an LLC.

They rely completely on the preventative measure saying, that’s going to solve all your issues. It’s like, no, you’re going to have issues. You’re going to have situations where somebody gets injured on a property, there’s liability, or there’s exposure.

Whether it be for anything that you didn’t mean to do, but maybe you fell below the standard of care from a legal standpoint and you have exposure, you still need to have something there that’s actually going to protect you in the event that there is a legal fight.

I cannot reiterate enough that just not letting somebody know how much you have, in other words how much that they can take, that prevents a huge chunk of the frivolous lawsuits, for sure. In the case of a legitimate lawsuit, it still gives you the settlement arguments to take it off the table. But at the end of the day, you have none of that if you don’t have some asset protection plan.

If you end up in a lawsuit, you want to make sure you have something there. That comes with what Josh just laid out. It’s creative use of entities. It’s making sure that you understand where risk is in isolating assets that have value so you’re moving the stuff that’s a value away from the line of fire, so that it’s not part of that discussion.

Josh, I think you did a really good job of laying it out. I’m going to say thank you for coming in. Thanks for hitting those three really important parts about keeping your self out of the public record and how you can keep privacy. I think you nailed it. Thank you, sir.

Josh: Thanks for having me.