This is the Castillo San Felipe del Morro in Puerto Rico. It is one of Puerto Rico’s most iconic structures built to protect the port of San Juan by controlling the entry to its harbor. The fort survived battles, wars, and hurricanes. Construction began in 1539 and was continually upgraded over the next 400 years. It has six levels and walls 18 feet thick. Interestingly, the fort only faced 5 significant battles in 1595, 1598, 1625, 1797 and 1898. Visiting the fort last year Quinn was struck by the considerable amount of resources allocated to protecting family assets considering the few number of attacks, concluding that the formidable defenses must have discouraged many more.
Protecting Family Assets
Today, we spend less time on physical walls and more on invisible shields protecting family assets. Protecting wealth from taxes, creditors, family members and ourselves is a frequent topic of discussion. Asset protection lawyers abound with promises of impenetrable trusts, entities and complex structures. Some valid, others not. Unfortunately, as is often true in life, there is not one end all strategy or plan that will protect your financial assets. Most bankruptcies in the United States are the result of medical care expenses, so being covered by strong health insurance and long term care policies are as, if not more, important than your auto and homeowners policies. From there, different situations call for different solutions. Identifying risks and implementing plans to minimize the adverse consequences is a delicate balance of priorities. The solution is a combination of education, contract documentation, legal structure and insurance that will give you the best protection against financial loss.
There are a couple overriding concepts that are paramount to protecting family assets. First, for best results, each topic must be addressed before a claim occurs. That means do it now, not after an accident when your alternatives are minimized. Second, like del Morro, the defenses must be built up, reviewed and modified over time. We have saved clients millions of dollars because we identified a potential issue in advance and addressed it. It is extremely satisfying to have a situation arise, having it appropriately addressed and being able to quickly resolve the matter without incurring significant legal fees or litigation.
To get you started, here are some general thoughts on protecting family assets. If you want more information regarding any topic, select the READ MORE button at the end of the paragraph or give us a call.
Everything starts with education, and we are not just talking about learning about asset protection. Education involves creating a culture around you that values safety, compliance, risk assessment and mitigation. This includes your partners, employees and family members. Adequate training and monitoring of employees has the dual benefit of enhancing the reputation of your business and minimizing the adverse effects of a problem. In addition, ensuring family members have the proper skills and teaching them about risk and the consequences of poor behavior can help prevent an accident from ever occurring. An ounce of prevention…Read More
Contract documentation is another way to minimize risk. Most businesses focus on notice, price and payment terms, but the other “boilerplate” provisions are equally important. Contract terms including appropriate releases, limitations of liability and indemnification provisions can effectively shift responsibility for claims to a third party or minimize the effect of a problem. Properly drafted dispute resolution provisions can resolve costly questions over the applicable law, venue and forum. We also spend a lot of time on the appropriateness of termination provisions and delineating what constitutes a default and when termination is for cause or without cause. Contract forms evolve over time and some provisions may get dropped or modified so that they are not effective as could be. We recommend having your core contracts reviewed to insure they adequately protect you and your business. Read More
The proper titling of assets combined with entities and irrevocable trusts can significantly enhance the protection of your assets. This does not mean that everyone needs a complex pre-packaged structure of entities and trusts. In fact, we spend a significant amount of time unwinding these complex structures because of changed circumstances, limited effectiveness or the structures have been incorrectly implemented or too expensive to maintain. With that in mind there are a couple must-dos regarding your legal structure. First, keep sole and separate property segregated from community assets and keep non-owners off of title to your assets. If you are concerned about succession planning, use beneficiary designations and pay on death designations. Second, the use of corporate entities to shield personal assets from business liabilities is also a simple way to protect your family’s wealth. Businesses, rental properties and other assets that third parties use or come in contact with should all have a corporate wrapper. Third, you may receive additional protection from some of your personal assets such as planes and boats being owned and managed by an entity for asset protection and identity protection purposes. This does not mean that every asset you own needs to be owned by an entity. Your house is a good example. There are a lot of variables that must be addressed when determining whether to put your house in an LLC. You must balance the risk of losing Arizona’s homestead exemption of $150,000 (A.R.S. §33-1101-1105) and its anti-deficiency statutes (A.R.S. § 33-729(A) and 814(G)) if your personal residence is transferred to an entity. Likewise, additional tax benefits such as the mortgage interest deduction and home sale exclusion can be lost depending on how the entity is treated for income tax purposes. Read More
Insurance coverage comes in many forms. It is usually your primary defense and has the two-pronged effect of protecting your family’s wealth from being depleted or lost to claims by a third party and providing liquidity in certain circumstances. Most bankruptcies in the United States are the result of medical care expenses. Being covered by a strong health insurance policy is as, if not more, important than your auto and homeowners policies. From there, general liability and D&O coverage for businesses and malpractice insurance for professionals is the next step and act as a first line of defense against claims by third parties. Finally, on the personal side, life, long term care and disability policies each add a level of protection by increasing the availability of resources for your family and protecting assets from creditors. For example, the cash surrender value and death benefits of certain life insurance policies are exempt from attachment by creditors under Arizona law. Read More
At DeAngelis Legal we are focused on making sure our clients address each defense strategy as we design and implement your business and estate plans. While other lawyers promoting themselves as asset protection attorneys simply drop a pile of documents on you, our approach is to make sure each defense is addressed and tailored to your specific needs and circumstances. If you would like us to review your situation, please give us a call.