Asset Protection | Live More Carefree
By Colin Ley
We all get the opportunity to name something in life. Cars, pets, humans…an invisible friend maybe.
Some of us get to name a business and if you’re like me, a high school rock band.
I’ve had some great name choices…and also some really bad ones. The good ones include “Legal Lightning” (1974 Ford F100), “Blue Steel” (1988 Toyota 4Runner) and “The Ley Firm” for the first iteration of our law firm.
By Colin Ley
QPRT (CUE-pert) stands for Qualified Personal Residence Trust. I call it the Homestead Hero Trust. Why? Because it’s a tactic that has proven effective to protect your homestead (i.e. old-timey talk for your home).
And everybody wants to be the hero of their homestead, right?
One of the most valuable assets people have is their home. They may even own a second home.
I talk to many people who worry about protecting their home.
Can you imagine getting kicked out of your home after being the victim of a stupid lawsuit?
There is a way you can protect your home if you take action now, before it’s too late.
A homestead exemption is a government provided protection for your home. Said another way, the protection is for your home equity (equity is home value minus the mortgage).
The law allows a certain amount of home equity to be protected from creditors. It varies by state. In Washington you get $125,000 in equity protected. That means if you have more than $125,000 in home equity, a creditor can take it from you. $124,999 or less in equity and a creditor can’t take your home from you.
Some states offer an unlimited amount of homestead protection. Most don’t. Some offer $0 in protection.
With the price of real estate these days, $125k isn’t very helpful. That might buy you a (small) driveway in Seattle.
So if your home is not protected from creditors because you have equity in the home, what can you do to secure your family home?
You can be your homestead’s hero with a QPRT.
A QPRT is most often used as an estate tax reduction device. It’s a trust to reduce the value of your estate so your kids don’t pay as many taxes on their inheritance.
However, there is a proven asset protection technique with a QPRT.
A QPRT works like this:
During the term, the house is held in the trust. Eventually the house will pass to the chosen recipient.
If protecting the home is the priority, instead of reducing taxes, here’s what you can do:
Choose a longer term of years– When reducing taxes, the term of years is typically around 10 years. That’s because you lose the tax benefits if you die before the term expires. With asset protection in mind you can choose a long term of years. 30…40…why not?
During the term of years you get to live in the home rent free. If you sell the home, you get to buy another home that will be protected under the QPRT.
You can protect not only your primary residence, but also a vacation home.
The key for a QPRT to work is when a homeowner doesn’t have the direct power to terminate the trust and reclaim the home. If the homeowner can do that, then a court will help you exercise that power so your home can go to a creditor.
QPRTs have proven to work in California courts, which for me is the highest level of approval. California judges aren’t known for protecting assets from creditors.
A creditor can “take” the homeowners right to live in the home for the initial term of years. This is unlikely to happen because there is little value in the right to live in a home. However, if the term is long, like 30 years, a creditor might take that right to reside in the home and rent it out to somebody else. Maybe a creditor would do that just to mess with you and force you to settle by other means.
To prevent a creditor from taking the homeowners right to live in the home, the homeowner can take an additional step.
You could assign the right to live in the home to another entity like a PREP Trust or LLC.
If that extra step is taken, a creditor could be prevented from taking the homeowners right to live in the home.
Is a Qualified Personal Residence Trust (QPRT) right for you? Will you be a homestead hero?
Schedule an initial consult and we can help you figure that out.
Colin Ley is an asset protection attorney and the co-founder of LayRoots (along with with partner in life & business – Shreya Ley)
Let’s talk about your asset protection strategy: book a free initial consult
By Colin Ley
Asset protection is not meant to protect you from intentional harm. If you intentionally cause damage, pay up and move on.
Colin Ley is an asset protection attorney and the co-founder of LayRoots (along with with partner in life & business – Shreya Ley)
Let’s talk about your asset protection strategy: book a free initial consult
By Colin Ley
By Colin Ley
The Lawyer-Human Show is baaack and hosting other partners in life & business – #PILABs for life. First awesome business hosted is Sip and Ship.
By Colin Ley
A few months ago, a reader sent me a question: “What’s to stop a judge from forcing me to turn over my LLC?”
He was talking about a single member LLC. Single member LLCs have fewer protections from potential creditors and predatory attorneys.
I wrote more on the topic of turnover orders.
How can you avoid a judge forcing you to turnover your ownership interest in an LLC?
Easy…don’t own an LLC. Instead, be the beneficiary of an LLC.
Ok, you can’t be the beneficiary of an LLC. But you can be the beneficiary of an offshore foundation administered like an LLC.
Also, I’m not talking about a charitable foundation as is common in the USA. An offshore foundation is a different type of entity in other parts of the world.
These types of foundations don’t exist in the US.
An offshore foundation is a hybrid entity. It is a mix between a company and a trust. Like a company it is a separate legal entity and administered with a management board. An offshore foundation does not have owners or shareholders. Instead, like a trust, an offshore foundation has beneficiaries.
A Nevis Multiform Foundation is a unique type of offshore foundation. Like an offshore foundation it is a separate legal entity with beneficiaries. Also, the founder elects whether to run the multiform foundation like a company, LLC, or a trust. This makes the Nevis Multiform Foundation resemble entities found in the USA.
Other Nevis Multiform Foundation benefits include:
A Nevis LLC Foundation can help you if you worry a judge will make you give away your single member LLC interests. It can happen.
You, as the founder, do not own the LLC Foundation. Therefore, if you have no ownership interest, you have nothing to give away.
As a discretionary beneficiary of the LLC Foundation, you have increased asset protection. If a lawyer targets you for frivolous litigation, you could even be removed as a beneficiary until the lawsuit goes away.
Will a judge make you turn over your LLC interests to a creditor? If you rely on “charging order” protection for your single member LLC, you might not get them.
Maybe you will. Maybe you won’t.
That’s unfortunately how our legal system works.
So if you think a little more protection could help you worry a little less, please schedule a time for us to talk. You can schedule an initial call online at livemorecarefree.com.
Colin Ley is an asset protection attorney and the co-founder of LayRoots (along with with partner in life & business – Shreya Ley)
Let’s talk about your asset protection strategy: book a free initial consult
