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Truth and Consequences About Asset Protection

This excerpt is from an open source article and is not necessarily the opinion of bostatic.com

It is no secret that the United States is the most sue happy, litigious society on earth. That said, it is important to note that many of these lawsuits are a necessary component of our legal system, and possibly the only means to right many of the wrongs that occur in our society on a daily basis. Unfortunately, the flip side of this observation is that many of these lawsuits are based on nothing more that an attempt by one party, with the aid of an unscrupulous attorney, to seize as much money as possible and generate a financial windfall for the suing party.

To help combat this legally facilitated form of extortion, was born the concept of Asset Protection. In short, asset protection refers to the legal techniques of protecting one’s assets from judgment. Asset protection is based on the principle that any asset held in your name (minus a few exceptions), can be seized by a judgment creditor; therefore, any asset not held in your name is exempt from seizure. Unfortunately, many so called “experts” that provide asset protection services have been offering services that range from unethical all the way to advising their clients to commit acts that are outright illegal. This article attempts to dispel some of these widely held myths regarding asset protection and provides some general guidance for determining when you are dealing with an ethical asset protection advisor and when you are receiving bad, perhaps illegal, advice and you need to turn around and run away. 

Some advisors are touting Nevada corporations as a way to hide from the Internal Revenue Service (IRS) and thus avoid paying taxes. Take for example the recent case against the Asset Protection Group, headquartered in Las Vegas Nevada. At first glance, this company appeared to be a legitimate organization providing advice regarding how to protect yourself and your assets from seizure. They had expensive promotional videos and a nice professional looking office. They even had a well known celebrity endorsing their services in a commercial. However, according to a recent court complaint filed by the Federal Trade Commission, if you cracked the shiny outer coating you found that the Asset Protection Group was run by two men: one with a suspended law license and another a convicted felon. Among the many services that this group provided, including some that were completely legal was the option of having the company listed as the sole signatory on their clients’ corporate bank accounts. This effectively hides the corporate owners from the tax liability of the company and according to the Asset Protection Group’s own marketing materials, helped shield their clients from “capricious federal judges and any government agency”. 

This is one of the biggest myths regarding asset protection: It is not about hiding your assets. A reputable asset protection advisor will tell you to transfer the asset from your personal name, into an entity which you control. However, hiding your assets from creditors and the government is not a sound asset protection strategy for several reasons. 

First, if you rightfully owe money to the IRS you are required to pay it. Second, if you are brought to a debtor’s exam, you will be forced to disclose what assets you have under penalty of perjury. A properly designed asset protection plan allows a debtor to disclose what assets they control, without sacrificing the protection. Anyone who tells you that setting up a corporation is a means to hide your assets and evade paying taxes is nothing more that a criminal who is advising you to join in their scheme. 

Also, be wary of anyone who is advising you to shield yourself through the use of “bearer shares”. Bearer shares are corporation stock certificates which are owned by the person who holds them, the "Bearer", and are not recorded under the owner’s name. Some unethical asset protection advisors tout bearer shares as a means to shield the ownership of a corporation and thus evade the tax liability associated with the corporation. The IRS has been aware of the practice for a long time and if they catch you using bearer shares to avoid paying taxes, be prepared to take an extended vacation in a federally funded resort with no pool and plenty of concrete. Any ethical asset protection advisor will tell you that the use of bearer shares is a BAD idea and if some expert is telling you otherwise, politely excuse yourself and run away- quickly.
Further, be aware that any advisor telling you it is possible to absolutely “bulletproof” your corporation from liability is lying and they are simply after your money. There is no magic cloak of protection from liability. That being said, a sound asset protection plan is an essential part of the success of your business. Although you cannot protect all your assets from legitimate claims, proper asset protection can limit the assets exposed to those legitimate claims. With proper planning and advice, you should be able to adequately limit your personal liability and protect yourself from illegitimate claims and unscrupulous individuals. 

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