JP: And welcome to the very special edition of the Wealth Management Show. For those of you who have been aware, through this livestream, you’ll be able to chat and interact with active professionals in the wealth management and related fields, leveraging decades of experience combined in these specific topics. The main goal is to provide a casual interactive space where we’ll provide commentary and insight into these sorts of topics and answer your questions here live for any that you have. Please, you’re highly encouraged. This is an interactive stream. Come on in and ask anything you’d like.
The goal here is so that you guys start to look at these topics a bit more like the professionals do. And that’s going to do two things. It’s going to elevate your knowledge, which will lead to secondary benefits, like allowing you to better tell if you’re getting well served and allowing you to take on more services and possibilities within your wealth plan that you might have been oblivious to before. The benefits that come with that are enhanced security and the confidence that you’re going to reach your goals.
There are many elements to these things. Once you understand them better, you’re much better suited to find those right professionals that you could rely on and live your life more freely with less worry, leading to better results for you and your family.
We’re here for you. Please use this as a resource. Take advantage today that we have our asset protection specialist on board. I’m going to introduce him here in a quick moment. That’s why we do these live streams, to make ourselves available. And as many of you know, this live stream has been growing and it’s expanding. It’s going to be now, going forward, a bit more about wealth management in a more general sense and a more holistic sense point of view.
You guys have heard me talk very much about integration and things like asset protection or estate planning or tax planning. But now you’re going to get a view into this, live, about — how do we interact with each other? How does a wealth manager talk with an asset protection specialist behind the scenes? And where is my head at when I’m wondering how these things fit into the wealth plan to better and more certainly reach high net worth individuals’ goals? — and you’re going to get a taste of that today.
I’ll start with just a bit of background of myself for anybody who’s not aware. I’m a co-founder of an investment firm named Rushlight Investments, where I act as wealth manager. What my job is as a wealth manager is to keep that 30,000ft view in sight at all times as we progress with the client. Things happen, and you know, their retirement goals, their philanthropic goals, their preparing and giving to the next generation goals, and the mix of all these things, asset protection, estates, all these things have different implications and different stages where they shine at different levels. So keeping an eye on that so that everything is functioning properly for that goal is my job.
And let me switch screens over here as I introduce our guest for the day. Ron Iacone, who is a shareholder of Iacone Law, P.A., specializes in asset protection with a focus on high net worth individuals, and this is exactly why we have him here today to talk to you guys about these things. This is going to give you another great example through his expertise of — this is one of the key relationships that comes into play when we’re talking wealth management plans and wealth management, the asset protection side of the equation. So hopefully we could shed some light on this for you guys today.
As for the agenda, today is just going to be an open discussion. So any questions, again, you’re encouraged. Put them in the chat, I’ll be keeping an eye on the comments section. If anybody’s watching through a watch party or shared post, I don’t see those comments on my feed, so come on over to my personal page, put your comments in below the actual live stream by going on my timeline, and I’ll be able to see them right away. And with that being said, Like, Share, Tag a friend who you think this would be appropriate for — business owners, people in risky positions where there’s a high probability of lawsuits, or other sorts of key people. If you know somebody like that, tell them to come over. There is going to be great information for them here today.
So let’s dive right into it.
So Ron, how you doing?
Ron: Doing well. Am I live?
JP: Yeah, we’re live. I got you loud and clear.
Ron: Perfect. Looking forward to it for sure. And I’m glad it’s not so much a presentation but rather more of a conversation. So I’m looking forward to interacting with any guests. And please, if there’s questions, as JP said, just send them to him and we’ll get the ball rolling that way.
But JP, I just want to thank you for such a gracious introduction. And of course, I relish this opportunity to be a guest on your show, and I look forward to sharing what I’ve learned over the years in this area, which is asset protection.
What is Asset Protection?
I’ve always seen from my experience in the topic to first define asset protection — what is asset protection? People seem to not know what it is, and a lot of times other advisors don’t know what it is. So I think I want to start out by defining it for you. And there are many definitions of it. There’s asset protection. There’s wealth preservation. I’ve even heard it called premarital or pre-litigation type planning.
But really, as far as the essence of it goes, what is it? And in our practice, it involves the implementation of certain techniques and strategies in order to place your assets beyond the reach of any future and potential creditors. When I say “place your assets beyond their reach,” what do I mean by that? I mean, it could be in the physical sense, in that we literally take the asset and move it somewhere else, which means it can’t be attached easily by levy or demand by a creditor. And by creditor, this person usually acting through an attorney. It could also mean in the metaphorical sense. The asset stays where it is, but we’re going to change title. We’re going to change the ownership.
So there’s different degrees of what asset protection is. But ultimately, what we want to do in conjunction with my clients’ advisors, and using an approach aimed at collaboration and integration, is to arrange my client’s financial affairs in ways that emphasize risk management. We want to accomplish preventative planning.
Goals of Asset Protection
Because what’s the goal with asset protection or wealth preservation? What we want to do is discourage lawsuits. We want to isolate risk and absolutely limit liability, which is important, as well as to promote settlement. If you’re sued, it’s best to focus your efforts on getting back to making money. You don’t want to be bogged down paying lawyers and defending yourself. So what asset protection does is accomplish exactly that for you. Even if you’re even named in a lawsuit, asset protection will help settle, and settle on your terms.
So in essence, using asset protection techniques and strategies we want to separate your assets from your liabilities. And to do that correctly in asset protection planning, it involves the mastery of optics. We want to do the protection in a way that judges are going to respect.
So let’s say, inevitably, worst case scenario, you’re sued, and let’s say, the planning we do comes across the judge’s desk. What do we want him to see? Do we want him to say, wow, this is blatant creditor protection. Oh, “he definitely transferred these assets because he didn’t want to pay or he want to pay a creditor.” We don’t want that. We want to master the optics behind the reasons for doing the planning.
What we want the judge to say, and the other parties to see, is that this planning, while it had the effect of wealth preservation, that wasn’t its purpose. There was another purpose here, and that was, let’s say, a financial plan. Maybe the purpose of the plan was to do estate planning or tax planning, or life planning in general. But what’s the effect? The effect is asset protection. What we want to do is protect your wealth. Asset protection is exactly that.
Why do you need Asset Protection?
So I guess the other question is, why? Why do we need asset protection? Especially here in the United States, there is a litigation plague. To put this in financial terms, there’s a bull market for litigation right now.
I mean, you can get sued for everything. Just do a Google search about the crazy, crazy lawsuits. And sometimes it’s not really the lawsuit that’s crazy, it’s the amount the jury awards the plaintiff in those suits. It can be shocking sometimes. And those are extreme cases, but nonetheless, it just sheds light on why protecting your wealth is very important.
If you’re a business owner, for example, statistically you’re going to get sued. It’s not a matter of whether you will get sued or not, it’s a matter of when it’s going to happen. And of course, if you’re a wealthy individual, in other words, the affluent among us, I mean, you’re a natural target for litigation. Because when you get sued, it’s not about justice. This has nothing to do with justice. It’s about how much money can the attorney who’s suing you take from you and give to his client? Because these attorneys, especially the personal injury attorneys, and the ones who take clients on contingency, make their money off of what they recover. To that effect, they’re going to try to take almost up to 40% of whatever they can get from you, which is a substantial amount.
And part of what asset protection does is to frustrate their economic analysis of the case; ultimately, the attorneys want to make money and their clients want to make money. But if the amount of hours spent on the case exceeds the cost and fees of what can be recovered, then it might not be worth the effort. For example, let’s say they send you the demand letter, they litigate, and then they get a judgment. And then they have to collect the judgment. As far as the economic analysis and to a certain extent the psychology of asset protection goes — does the amount of hours spent on litigation and justify the recovery? And even if there is a judgment, are they even going to be able to collect?
So asset protection might not prevent you from being sued, but what it will do is frustrate that economic analysis when an attorney takes on the case so that it wouldn’t be worth it to go after you; asset protection planning will making collection insurmountable in some cases.
So I always ask my clients — do you really think you’re going to go your whole life without getting sued? Your whole life without getting sued? Maybe, but maybe not. And then if you are sued, do you think you’re going to be treated fairly in a lawsuit?
I mean, as they say, if the hurricane is around the corner just coming off the coast of Cuba, it’s probably going to be difficult to get hurricane insurance on your house. If it’s on fire, you’re probably not going to get fire insurance, right?
So with asset protection to work best, you need to engage in a preventative type plan.
JP: This is comes up in a lot of the themes that I’ve talked about, so I just want to interject, because I see it coming forward. I wanted to make a point of mentioning it, of the interplay between what’s going on.
And the fact that sometimes you don’t get a sense of all these things. We’re here to elevate your understanding so that you know when to come to us, you know when to seek out the help when you need it, proactively.
So don’t let some of these worries that might be the initial seed of a problem grow, or manifest into that moment where it feels like a bucket of cold water is dumped on you, i.e. once the proverbial stuff hits the fan, as they say, right?
So just take that into account here. And reach out to your trusted advisers, we’re here for you, that’s why we make ourselves available. I always say it. And talk these worries out. Because these are the things that you could do proactively.
Ron: Right. That’s exactly right.
And just to echo what you said, JP, you need to surround yourself with a good team of advisors, your wealth manager, your CPA, your attorneys, because they can be invaluable to you, help guide you and help protect your financial wealth.
Your Greatest Asset
Because at the end of the day, what is your greatest asset? Think about it? What is your greatest asset? Some people say money. It’s my business empire. It’s my royalties. It’s my intellectual property rights. But is it really? Think about it. What is your greatest and most important asset? It’s your children.
We are a family society here. And when we do good in life, the goal is not just to waste our wealth and dissipate it on frivolous entertainment, unless we live under a Bernie Sanders administration. But that’s neither here nor there.
The main thing is that when we accumulate wealth, the goal is to eventually give it to our heirs. It’s to pass it on to our children. Not to spend it recklessly.
Which is why it’s so important to work with your advisors, let’s say, your tax planner, to make sure that it’s efficient. There’s tax efficiency there. You work with your financial advisors and managers so they can help you manage and grow your wealth. You work let’s say with an estate planner to ensure that there is an orderly transition of wealth, from one generation to the next generation.
The asset protection angle, and our focus, is to make sure that that wealth stays with you. Stays within the family. And of course “stays with you” is a relative word. Because as Rockefeller said, “you want to own nothing, control everything.” What’s the difference really? And if you don’t own it, it can’t be taken away from you — in the most simplistic terms possible. Of course there’s always exceptions.
But I tell my clients that you need to think about your children. And if you don’t have children, your heirs and those, on your passing, who you would like to share your wealth with.
Asset protection can help and be an amazing compliment to your financial planning and your wealth planning, which is key.
I think we have a great question here. I think it ties into what we’re talking about. Because we mentioned some of these different components.
Katarina has asked — would it be prudent to work in conjunction with the trust lawyer and an asset protection lawyer to cover your bases? If so, which I believe the answer would be “yes”, what steps should be taken? And in which order is best to be advised?
So I’ll answer very quickly, and then I’ll have Ron cover the asset protection side of this. And he has some expertise in both of these areas.
Some of these things is exactly what you would rely on a wealth manager like myself to help quarterback for you. So there are tiers of estate planning. There are tiers of asset protection. And depending on your specific situation, whether things like your assets, how they’re distributed, whether you’re a business owner or not, whether your job carries inherent risks of potentially being sued — all of these different things is going to impact to what degree you would need, maybe asset protection, to what degree you would need estate planning.
So when I’m looking at something from a 30,000 ft view, the way that it works is you don’t have to worry about these types of things. Because these are extremely valid questions. But that is the question that I’m going to bring up and help you, given I was your wealth manager. So I have your goals in mind. I know that maybe we’ve had several conversations, as an example, where let’s say, philanthropy, the inheritance for your next generation, and you know, your lifestyle and retirement, are your key components. So any time there’s a life event… So you know, things like a certain somebody passes or before so, or a new business get started, or assets start getting accumulated, those are all things that make my mind go — ding-ding-ding-ding, someone like Ron needs to be contacted because there’s asset protection implications and what’s going on here.
That’s the importance of not just working with quality professionals, but going to your quarterly review. A lot of people avoid those things, and I understand, especially if you’re dealing with someone who it’s just a matter of taking off a preset form for their legal purposes. No, it’s about having a conversation about — this is what’s going on with my life, these are the things that are worrying me right now, these are the things that I have in my mind — and all those get translated into tiered approaches over time in these different areas. And as it becomes appropriate, you start engaging someone to help protect your assets as assets grow, someone to help…
One of the first things people think of with estate planning, for example, is when you have a child. You start worrying about certain things like the implications of a guardian for them, and maybe have your first will. And as you start getting assets, you might start thinking in the trust areas, all these different things. There’s expertise there, and there’s tiers to your life. So the answer to this question, in my opinion, is to set things up and find sophisticated people you could work with, sophisticated wealth management, so you don’t have to be asking yourself these questions. Because they’re puzzling, and it takes a long time and a sophisticated network to address them. And then I would love Ron to comment on this part. Because I know you know a bit. I’ll repeat it for you — work in conjunction with the trust, so she’s saying an estate attorney and an asset protection attorney, to cover your bases, talking about that.
Ron: Sure, thank you for the question.
Asset Protection and Estate Planning
Estate planning and asset protection. They’re not mutually exclusive. One is going to complement the other. And as we approach the topic, a lot of times, depending on timing of course, and depending on the specific facts of your situation, what you want to do is not the asset protection but the estate plan. But what’s the effect? Asset protection.
Because remember it’s about doing this in a way that judges and juries are going to respect so that the effect, secondary to your main financial plan or estate plan, would be to protect your wealth. But that’s not it’s purpose. Although a lot of times between the client and I, we know what we’re dealing with.
There’s a lot of competent estate planners out there that advise on asset protection. And I’m of the opinion that if your estate planning attorney isn’t advising on asset protection, then there could be issues there, certain malpractice issues. Because one thing is to, as I mentioned before, provide for the orderly disposition of your assets on your death, but it’s another thing to make sure that by the time that you die you still have assets within your estate. And that’s when an asset protection attorney can really help, a lot of times working in conjunction with the estate planner, almost as an advisor.
But it really just depends on the facts. For example, I’ve worked with estate planning attorneys where they come up with a structure. But there could be issues with, well, how are we going to transfer those assets into the structure? Because remember as I alluded to previously, the biggest weapon against asset protection is the law of fraudulent transfers. Which means that you can’t do anything in derogation of the rights of a creditor. So in English, that means that if I sue you, and I know you’ve got a million dollars, but then you just give the million dollars to your brother, you can’t just say — sorry, I have no more money.
If that were the case there would be no remedy. It would be pointless to sue people.
So under the law of fraudulent transfers, or as it’s now called voidable transactions, I would be able to ask a judge and say, well, nice try, but you have to get it back — your brother, that person has to give it back to you.
Or worse, I can just go directly after the person you transferred it to.
So I’m brought in a lot of times to advise on how to properly transfer assets into the structure. Because arguably, again, depending on timing, depending on facts, it’s not so much the resulting structure that’s important. I mean, you can a lot of times just go to Google and Google will give you a plethora of structures from which to choose. It’s about the transfer into the structure and whether a judge will be able to unwind that transfer.
And of course it depends on the amount of the wealth — are you above the estate tax exemption or not? Do you have the assets, let’s say, to warrant a fully funded trust? Or perhaps a revocable trust would be better suited.
Or we can see that with the estate planners, revocable trusts are great. I mean, you avoid probate. But they’re revocable. A judge can say “revoke the trust” and the assets revert back to you, and then there goes your asset protection. So a lot of times it’s working in conjunction with estate planners.
Asset protection, it seems, almost has this exotic appeal to it, where, oh, yeah, we want to go offshore, or, we want to create these complex structures. But a lot of times it isn’t. In fact, we do asset protection all the time without even knowing it. For example, insurance; it is great and it is cheap. And insurance is usually the first line of defense and can be considered basic asset protection planning.
I mean, with insurance, what are we implicitly telling the attorney that plans on suing? The insurance company is richer than us, so just go after them. So with insurance we’re shifting the “liability to pay” to the insurance company. That’s where the attorneys are going to go. So is that asset protection? Well, yeah.
A lot of people operate under limited liability companies. They don’t even know it, but those are great asset protection tools. Why? Because they limit your liability. So people do ask for protection every day in their lives without even realizing it. And as far as when you get an asset protection attorney involved, it would depend on the particular facts of your situation, and the amount of wealth, whether you are sued or not. Will we being doing a proactive type of asset protection? Or will we be doing a preventative type of asset protection?
But my point here is that it’s something that you need to think about. Don’t just think about the estate planning. Think about, well, how to protect your assets that will go to your estate, so that on my passing, they’re there for my children or for my heirs.
And I want to mention one thing that JP said. He said he was a quarterback. Wealth managers, like JP, are excellent at quarterbacking these cases. And you really need to seek them out and consult with them so they can identify certain issues and then say, well, you know what, I think you need to speak to an estate planner or asset protection attorney, or both.
JP uses the term quarterbacks, which I often use myself. I also a lot of times call them composers, in the sense that they are composing a symphony. They’re directing everything. They say, oh, we’ll come over here for the asset protection, go over there for the estate planning.
My point is that it has to be a collaborative effort. So to answer your question without rambling on too much — they’re not mutually exclusive, and there’s a spot for all of it. But what I want you to get from this is to think that asset protection is something that deserves your time to think about.
Mastering the Optics of Asset Protection
Ron: Regarding, when I mentioned before about the protection… We want to do it in a way that is respected. Because it goes back to that fraudulent transfer issue — your intent. Why did you do that transfer? Was it estate planning? Maybe or maybe not. So working in conjunction with an estate planning attorney, we can make it so that there’s not just asset protection, but also effective estate planning. And that’s why I am a big believer in the approach that JP had talked about in the beginning and throughout this presentation and this conversation, is that you need to combine your asset protection and wealth preservation with your estate planning, tax planning, and financial planning.
And you can’t just go to Google and look up the structure. My clients come to me and they said, well, what if I did this? I had a client the other day, he wanted to transfer a large part of his asset… He was going to get sued and he wanted to transfer a large part of his wealth to his children. You know, estate planning. Right? And I just said, do you really want to involve your child in your problems? Really? Because when it comes to the psychology of asset protection, we have to know a substantial amount of the law regarding collections, and the remedies for creditors. Of course, one remedy being fraudulent transfer.
So you might have an indestructible bulletproof plan, and let’s just assume they can’t get your assets, but the creditor can make your life difficult. One commentator said to me one time, and it stuck to me, is when it comes time to enforce a judgment against you and collect your assets, it’s about pressure points. So maybe they know they can’t get the assets because they’re safely protected, but, well, if you transferred assets to one of your children, perhaps they can bring your child into a lawsuit. And that changes the game.
So you have to get into the psychology of it, as far as how are we going to offset the attorneys economic analysis of the case and how are we going to relieve ourselves of as many pressure points as possible? It’s all about the transfer of the assets.
JP: Cool. Yeah. I think that’s a great point. And honestly, that was a great question.
To me, it speaks also to the importance of, and I really hope you guys could appreciate, because it’s respectively very intentional, the way that Ron has set up his situation and his firm, and the way that our firm is set up, and I always talk about independent firms.
And there’s a certain quality and checks and balances that comes with a seamless team, comprised of independent firms. They all have respective responsibilities to you. And then when they’re working on a team, there’s checks and balances here, that even come out, not just in your best interest in minimizing conflicts, we’ve seen some of the massive fines being handed out when we cover the news in some of our previous streams, seeing massive fines, massive violations happening at these large firms that are highly conflicted.
When you have a set up like this, not only are there checks and balances, but you can have a situation where asset protection works with an estate planner. And then if there’s an issue, it’s very difficult — going off what Ron was saying — it’s very difficult to say, “you did this just to protect your assets.” Well, there was even an estate planning attorney involved because this has to do with the estate planning ramifications and it’s part of my estate plan. And not just that, this all fits into a larger wealth plan that I’ve been building and maintaining for how long now.
And that changes the game, not only in just quality. But there’s synergies here, even in what somebody like Ron is able to do, in a framework like that. And you don’t have to sacrifice the convenience, because professionals can work together. Specialists are meant to be part — which him and I are — specialists are meant to be part of a team.
Think of it as a highly specialized surgeon. There’s many people that go into a given surgery aside from even the surgeon who, even if they are the key player, or what have you, there’s many people that come into play here. There are many specialists. And by nature, specialists play well together. They’re supposed to be part of these cohesive teams.
And I hope you guys start seeing the difference in approach, the difference in, frankly, quality, sophistication when you deal with high expertise, independent specialists, and then how they come together as part of a wealth plan. Also you were saying — clients love getting a feel for things in their search for professionals. So, not only in their search for professionals — have you guys gone and looked for professionals? It’s quite daunting.
There are people everywhere. It’s very hard for you with low expertise in the area, to sort of sift through — people will come to you with all sorts of attractive structures, as Ron would say, oh, we’ll do this, we’ll do that, we’ll do the other. But there’s a bunch of other things that come into play, just like how it was executed, that’s going to determine your success. And there’s nuances like that that are going to be very difficult for you to figure out through some Google searching and a little bit of Google research. So, you know, minimize conflicts. You’re already going to do a lot for yourself there in these areas that I’m telling you. Seek out high expertise and people who are willing to work together.
You start creating systems where, once you’ve done your due diligence, you’ve learned a bit, you’re setting up systems to best serve you — low conflicted, independent, all these sorts of things.
I know there are things that have been repeating. The reason I take opportunities like this to piggyback off conversations is — those of you who have been here from the start of our streams, I’ve repeated these themes over and over and over. And as we go on, and we’re going to have more conversations with Ron and others in areas like tax and possibly estate planning, you’re going to see the things that I’ve been alluding to in real life examples. And I urge you guys to start understanding what that means for you in your life, and implement these things for your own benefit.
We actually have another question here. Let’s check it out.
Sal is asking — so if I’m following you, if I have it set up beforehand, it makes it much harder for them to involve your kids? Or are they always going to be at risk if they’re involved in your estate planning?
Ron: Sure. Thanks, Sal, for the question.
I guess it would largely depend on how it’s set up, and how far in advance it is set up. Because there’s laws that claw back certain transfers going back years. So you would have to look at the documents and the circumstances upon which the transfer is consummated.
But generally speaking, and of course there’s no one-size-fits-all structure, the facts will determine how to best involve your kids in your proposed structure. If it was set up in advance and there were no creditors to worry about, then you’re probably fine. And your typical estate planning, let’s say, a revocable trust, by its very nature is a good tool to use to transfer assets to your children. And of course, for tax purposes, for estate planning purposes, of course you can gift assets to your children.
But the only thing that I’m saying is that when you do so, and before you start making transfers and doing that, make sure you’re well advised. Make sure it works well with your wealth plan. Make sure from a tax perspective, it’s clean. And then of course from the estate planning and asset protection perspective, make sure that it’s going to work. Make sure that it’s going to withstand judicial scrutiny, for that worst case scenario. Because the asset protection could be the linchpin of the entire plan.
But to answer your question directly, it sounds like you would be fine. But like I said, it’s a heavy, heavy fact-specific scenario, to see whether they can go after your children or not. But probably not. And it usually settles before that, depending on the claim and on who your creditor is. Is it the IRS? The SEC? An ex-spouse? Is just your typical business divorce?
So a lot of times we look at the creditors. Who are your creditors? As a result of this structure, are you now insolvent? Are you still paying your debts? These are all elements that we have to look for and plan. And we advise our clients accordingly on that.
As JP was saying — you need to reach out to your advisors on this, and create that team, before, let’s say, you just start transferring assets without any thought about the issues we’ve talked about. The planning needs to flow and it needs to be cohesive and integrated. And then of course, depending on the issues, we involve what are certain innovative and creative strategies alongside your other advisers to protect your wealth.
And yeah, again, I say it over and over again, that’s why I started the stream to begin with. Now it’s growing and it’s going to extend into some other mediums and other platforms as well, thankfully. We’re expanding into talking about these issues that I’ve been alluding to more in real time with real examples, and opening it up to you guys as well, for your benefit. But we’re here for you guys. That’s why we’re here. I’m going to put up the contact information. We’re going to be wrapping up shortly. So just, as an FYI, any last questions, squeeze them in before we have to wrap up.
It’s the reason we make ourselves available personally. Especially now, streaming to Facebook friends and our extended business networks, etc., clients and friends — please don’t be shy, reach out to us. Our contact information will be there. We’re here to be used as a resource. We’re here to help individuals. We’re very proud independent professionals. So rely on us. Take advantage of that. Absolutely.
And I had one last question. It was kind of the funnier ones. To give us one of these… We’ve talked about a lot of them and I know I’m putting you on the spot here, Ron, but some of these, maybe a high net worth example of some of these horror stories, where someone tried doing something, and maybe in the name of asset protection but it didn’t quite work out, or where someone just didn’t do it and things went pretty badly — just to emphasize the importance of these sorts of things.
Ron: I think one of the most famous cases within the asset protection community, without getting into too many facts, is that an individual had about $6 million in assets, and he was sued. Of course, everything was in his own name. He spoke to an estate planning attorney, who I believe dabbled in asset protection. And he was advised to transfer $6 million to his wife who, in the American Bar Association article about the case, was what they called a “Pinup Wife.”
So as you would expect, three months after the last transfer went through, he was served with divorce papers, and she was going to move on—but this time with his money. And the transfer of course happened by working with a family law attorney, on a postnuptial agreement. So the assets become that of the wife. So in court, he went to the judge, pleading with him and just said – “you know, your honor, I really just did this to protect my assets.”
That’s fail number one. You never want to say that you’re doing it for protecting your assets.
“And — I need you to rescind the postnuptial agreement because it was fake. I didn’t really want to give everything to her.”
The judge looked at the agreement and he said, well, this looks real to me, I’m sorry. And the last that was in the article was that he was penniless, living with his mother.
So that is major fail.
Ron: And it’s not to say that transferring assets to your spouse is not a good option. Doing so can be an amazing option. But it depends on the facts, and what facts are we looking at. And I see a lot of these reckless transfers between children and spouses without the transferors thinking about the consequences of doing so. The same thing goes for transfers into your LLC, where a lot of people tend to think by default that your assets will be safe, but they are not going to be, depending on the facts. So this is something you really have to look into that—the facts and the transfers.
And a lot of clients come to me, and they come in with these grand scenarios and these what ifs. And I think, if I may, just from my memory, what I’ve seen, is that some have a trust thinking they have asset protection. They say it’s for the benefit of their heirs, but it’s revocable. And a judge just says “revoke it.” No asset protection. Or, perhaps it’s an irrevocable trust, but you maintain too much control and benefit from and enjoy those assets. No asset protection.
And then, the big thing I see is that people just put their assets in an LLC and they think that that’s going to protect them. Remember, limited liability companies are great, but they’re just pieces of paper filed with the division of corporations, where in the law imputes the legal fiction of personhood onto the entity. It’s like a person, right? But they don’t have a brain, there’s no arms, there’s no legs (hence the legal fiction).
And I see this in the real estate context a lot, where they put the property into the LLC thinking it’s going to protect them. But how is an LLC going to collect rent? How is an LLC going to fix the water heater or the oven? And let’s, God forbid, pretend that something explodes and the tenant gets hurt. Who do you think they’re going to sue? Well obviously the LLC, right? Because that’s the owner of the property. But remember, LLCs, despite being people under law, can’t technically fix things, they’re fake in that sense. So there’s always going to be a human being behind it, and the lawyers will almost inevitably sue that human being, usually under a tort theory.
And the question with asset protection is, well, how are we going to protect that human being? Which is you.
Regarding the LLC context, people spend way too much time thinking about how they can limit their liability, and separate themselves from their business operations. In other words, they don’t want to be liable personally for the debts and obligations of their business. But I find that a lot of people spend no time whatsoever thinking about how they’re going to protect the business from them. Because if you get sued personally, and assuming you just don’t cut a check over to the plaintiff if you lose, the person who wins the lawsuit is going to say — well, what assets do you have? Wow, you’ve got this empire or conglomerate of companies, all owned by you.
So they can seek to attach your stock in corporation or obtain a charging order attaching the economic rights to profits in your company, if you are an LLC. In the case of a single-member LLC, the creditor may even foreclose on your interest in the company, which will give them voting rights. And if that happens—they take your stock or foreclose on your interest in the LLC—then you’re no longer the owner of your company and thus will no longer have control. So you have to think about liabilities from the inside and from the outside, as outside liabilities can result in you losing your company.
And I think I’ll conclude with this. LLCs vs corporations. Corporations are malpractice. Corporations are bad. Do not get corporations. If you’re a professional advisor, that’s a different story. But if you’re not, corporations provide you with zero protection against outside liabilities. And it’s all too often I see clients that have “Incs” and “Corps” and I say, well, why? And they say, well, my accountant recommended that. Because we wanted to take the subchapter S-election or we want to be taxed as a C-Corp.
And I say, well that’s great, because you can do that with an LLC. But do you know that corporate stock can be attached? That means that if you own a corporation, a creditor can take your shares, and usually voting rights are pegged to the shares; in addition, under the doctrine of free transferability, there are usually no restrictions on the transfers of shares. If there are no restrictions, then there are no restrictions on your creditors form asking a judge to force you to assign your shares to them.
With an LLC, they can’t do that because of charging order protection, which means only the economic rights you have in your LLC can be attached, but not voting rights. And as I mentioned before, with the limited exception of single-member LLC, creditors are prohibited from forcing you to transfer you ownership to them. But that would be a speech for another day, another topic. But LLCs are the entity of choice.
JP: Yeah. We had one last question snuck in on a watch party. Because they don’t get aggregated on my main feed here, so I have to look for these.
But someone was asking — within the context of asset protection, should the average person have an umbrella liability policy?
Ron: Yeah. I hope you’re having fun at your watch party. I have to look that up.
But as far as the insurance question. Absolutely. Absolutely. And that’s essentially free asset protection, in that it constitutes asset protection without really doing any type of asset protection planning, although insurance should always form part of your plan. Think of it as a first line of defense. I mean, again, you’re shifting the burden, the liability to pay, to someone else. And who’s the attorney going to go after? The deep pockets. And those are the insurance companies.
So you should absolutely, 100%, have your, let’s say, commercial liability policy. But the devil is in the details: if you ever look into these policies, you’ve got one page of what’s covered, and then 20 pages of what’s not covered. Usually two or four columns in very tiny fine print, which is literally fine print. And you know, a lot of it doesn’t cover you for intentional acts or negligence. You really got to look at the policy. So for whatever is not covered, then you get the umbrella policy. And they’re really, really, really cheap. And it’s just an added layer of protection.
Asset Protection Steps
And if I may, JP, as we had spoken briefly about it yesterday. Think of it as an asset protection period or continuum. It’s like, what are we going to start off with? Well, insurance of course. That’s asset protection right there. But insurance alone is always not enough.
Asset protection is like your net worth insurance. Insurance for your net worth.
And then, okay, after insurance, then what? Well, homestead, if you live in Florida. In Florida homestead is completely protected up to the full amount of the property, subject to certain acreage limitations.
And then after homestead, well, let’s look at our statutory exemptions — annuities, life insurance, maybe titling assets in the name of the marriage, which is tenancy by the entirety, which is great planning. And Florida allows you to title assets that way, not just real property, but personal assets, which is great.
And then we move along the continuum and it’s like, okay, after statutory exemptions, let’s look at now our investment type entities. Let’s look at LLCs. And perhaps revocable trusts that we can incorporate into that for added protection.
And then after that, we get into the irrevocable trusts.
And then after that, you can go offshore. And going offshore, which is outside the scope of this presentation, is great if it’s justified, of course. Because you’re essentially taking the assets outside of the jurisdiction of US judges and juries. But it works best only when it’s done right.
So I’ll conclude to just state that you need to be properly advised and have your team. Because you can look these structures up. It’s not so much about the structure, it’s about the transfer into the structure. And with competent advisors, you can certainly affect a great preservation and protection of your wealth.
JP: Yeah, absolutely. I think that’s a great point to end off on and to tie it back together to what we do.
Ron is a professional who has a holistic view. And my job as wealth manager, like I’m always saying, is it’s that 30,000 ft view. So when you work on things in isolation, things are missed. And why do you go to professionals and a wealth manager who’s going to deploy different people? What do you see someone like Ron for? In the end of the day, it’s for security and that feeling that comes with, hey, no matter what happens to me, anything could happen tomorrow, somebody that sees me as a target and tries to take advantage of me, all of those things could happen, but I’m going to be safe, and I’m going to sleep like a baby because of it.
And what I would say is just take what we’re talking about here to heart. Because sometimes people arrive at that feeling by working on things in isolation. But like we were talking about the umbrella policy. When you’re taking the 30,000 ft view, it’s going to be part of the plan that you might have an umbrella policy, you might be already doing different things in different areas. We’ll take into account things like if your home is protected.
Whereas if you just work on something in isolation and someone quickly assesses your scenario, not only could things be done wrong, you might also perceive that you might be protected and safe or have a holistic plan, but really, things aren’t going to be working as you thought they were.
Or there could be overlap and that inefficiency could lead to the same thing we’re trying to avoid, which is eroding the value of your assets. We don’t want that, right? Because we want it to be maintained. We want it to be there for your children. That’s what you’re seeking. That positive force in your life where you know, not just, hey, I’ve done all these different things, oh yeah, I got an estate guy, I got someone I talk to about asset protection, I have someone working on the portfolio. Where, no, it’s a cohesive plan with synergy, where people are on the same page and they’re sophisticated. So that’s the type of conversations we have here, that’s the type of teams that Ronald and I are trying to be part of, always. That’s the main goal. Because we know at the end result, that’s where clients win. So in the spirit of elevating your knowledge and wealth management, take these lessons that we’re showing you guys — reach out, we’re here for you.
As we wrap up here, I’m going to put our contact information on the screen, both mine and Ron’s. Don’t be shy please. We’re here for you guys. Again, take advantage. I’d like to sincerely thank you guys for being here.
Again, this is Ron, shareholder of Iacone Law, P.A.. And I’m JP, as you guys know me, or some of you as Jean Paul, cofounder of Rushlight Investments. I’m a wealth manager, private wealth manager. We’re going to keep having these streams over time. It’s eventually going to evolve into a larger panel discussion, where we’ll tackle topics simultaneously from the asset protection side, from the wealth management side, from the portfolio side, with my partner Gaston, from the tax side with CPAs in different areas. All these different things will start giving you that enhanced knowledge and make you a better consumer, so you could align yourself with people like we’re describing here. And that’s ultimately going to optimize your chances of success, going to yes, give you that feeling that you’re doing great, but not just the feeling — the real great products, the real great system behind it, and cohesive from the 30,000 ft view.
So with that being said, here, I’m going to throw up the screen for you guys. Our contact information is there.