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Asset Protection Strategies

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The goal of asset protection

People call us interested in setting up an asset protection plan. Or they want to upgrade the plan they already have.

These people have done their research and have spent a lot of time worrying before calling us. They want to know whether this entity or that entity (like an offshore trust or LLC) will withstand the worst imaginable circumstances. This is understandable – you’ve already imagined these worst imaginable circumstances. You are sure that you will go straight from being served a lawsuit to this extreme. You want to get value for the cost of your plan.

What is this “worst imaginable circumstance” that people are imagining? You get sued, you lose the lawsuit, you get a judgement against you, and then a creditor attacks and tears down your asset protection structure. They threaten you with jail time because you won’t “give up the goods.” You are disgraced, your assets are in jeopardy, and you spent all that money on a plan for NOTHING!

[Read more…] about The goal of asset protection

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QPRT

Protect Your Home With A QPRT

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.

Limited Homestead Exemption

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.

Crank Up The Protection

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:

  • the homeowner gifts property to someone else
  • the homeowner reserves the right to live in the home for a set term of years
  • the homeowner reserves the right to rent the home after the term of years expires

During the term, the house is held in the trust. Eventually the house will pass to the chosen recipient.

Extra Protection For Your Home

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.

Does A QPRT Work?

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.

How To Give A QPRT Just A Bit More

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


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Hybrid Asset Protection Trust (like a house fire)

Hybrid Asset Protection Trust

A hybrid asset protection trust is a planning tool that utilizes a “best of both worlds” scenario. Those worlds being domestic asset protection trusts and offshore asset protection trusts. There are pros and cons to both of these asset protection trusts. However, a hybrid trust can be both a domestic trust and an offshore (or foreign) trust at the same time! This type of trust is a flexible tool that is optimized for any given scenario. [Read more…] about Hybrid Asset Protection Trust (like a house fire)