Trusts, Corporations, and Other Entities Can Shield Your Wealth

If there is any potential downside to becoming rich, it is asset protection. The more money you have, the bigger a potential target you become. Consider this statistic: Each year tort litigation costs every American an average of $880. In fact, the total cost of tort cases in the U.S. last year was more than $250 billion.

Asset Protection souds scary, doesn't it?

Even scarier is that nearly one out of every six jury awards in the U.S. exceeds $1 million. In some states, one out of every four jury awards exceeds $1 million. During the last five years, more than seven percent of all U.S. companies, both large and small, suffered a lawsuit costing them in excess of $5 million.

The good news is that although you can't avoid being a target, you can avoid getting hit. You protect your assets by shielding your wealth through entities and other protections.

Assit Protection Basics

Successful people are not only interested in making money, but also in protecting it. You can have many streams of income, but if you aren't careful about how you develop and protect them, you could lose them all. It's important to understand how to protect what you've worked so hard to get.

Realize that asset protection for someone who owns 20 hotels and 15 apartment buildings will be more significant than for someone who just has a beat-up car and an overdue credit card bill. So start thinking about asset protection today, even though you may not have any worries now. Here are two suggestions:

1. Stop officially "owning" things
   The more you own, the more likely it is that you will get sued. Research indicates that if you earn more than $100,000 a year, you have a one-in-four chance of being named in a lawsuit. If you earn at least $250,000 a year, you have a one-in-two chance of being named in a lawsuit. Learn how to take things out of your name so that you don't "own" them--one of your entities does.
2. Get assets out of your name The fact is, most wealthy people don't put possessions in their own names. If your business is real estate, you can buy property in a corporate name or in a trust name. You can set up a land trust or a true irrevocable trust. Buy and sell properties, own properties, and partner with people through trusts and corporations so your name won't be on the deed or title.

Entities that Offer Asset Protection

Several types of business entities exist that can serve your individual needs. In Issue #119 we talked about using insurance policies. Insurance is your first line of defense. In Issue #119 we also talked about using corporations. Most businesses in the United States operate through a corporation or partnership of some kind. These entities make you look more professional, allow you to run your business(es) with a level of asset protection, and can continue past your life if you choose.

In this issue, we'll cover trusts. The two types of trusts for you to become familiar with are land trusts and irrevocable trusts. (See the other article in this issue to learn about living trusts.)

Land Trust
Do you know that the worth of your home and the original amount of debt owed is on public record when your home is owned in your name? Anyone, including a plaintiff's attorney, can find out what it is, where it is, what it is worth, and what the approximate debt on it is. To be anonymous, many people take their properties out of their names and put them into a land trust. Then you don't own it; the land trust does.

This is an excellent way to hold real estate or "take title" to property. Investors, real estate companies, and corporations often form a land trust--a legal entity designed specifically to hold real estate. A trustee is named, and you are the beneficiary. But only the trustee's name appears in public records, not yours. You have liability protection because it is a separate entity--and best of all, you have anonymity.

The thing to remember about land trusts is that you control it and still get the tax advantages, even though it's not in your name. Trusts are also advised if you are wholesaling or lease-optioning houses. Put them in a land trust that you control.

Irrevocable Trust
You can set up this kind of trust, but you can't change it. It's almost impossible to get it into any type of court or legal situation. If you have an irrevocable trust with $1 million of real estate that throws off $100,000 a year, and your child is the beneficiary, make sure the trust has a spendthrift clause. That will ensure that no one else (for example, a participant in a divorce or a creditor who sues after a car wreck) will be able to claim that money intended for the child.

Also, if you have life insurance, you might have to pay estate taxes on that life insurance. Instead, you can move that asset out of your estate and put it into an irrevocable life insurance trust. Once you place your assets in an irrevocable trust, no one will be able to touch them.

Summary
Now you understand how asset protection works, that you can set up entities to help protect your assets. If you own assets and others sue you, they can get everything in your name. If only a percentage is in your name and the rest belongs to an entity, those suing you can't get it all--only what's in your name. A corporation or trust is viewed as another entity in the law, separate from you, even though you still control its activities.

Here's one last thing to remember: Asset protection is important, but don't jump the gun on setting up entities to shield your wealth. Too many people get caught up in setting up their asset protection when they should be out looking for great real estate deals! So be sure to do it as you accumulate your wealth, not before. And when you do, get referrals from others in your area. You always want to deal with qualified, competent professionals when you're setting up any aspect of asset protection for yourself.

Visit the Trump University website to learn more about wealth creation strategies.

Plan Ahead - Simplify Things for Your Heirs & Loved Ones

In Issue #122, we talked about focusing on probate deals for a great source of real estate (and personal property) investment leads. In this issue, we'll discuss how to avoid probate and how to make sure your assets never become an investment lead for someone else--and we'll do this by eliminating the probate process entirely!

In case you missed Issue #122, probate is the term for the legal process of disposing of the estate of a deceased person (or decedent). After paying the debts and taxes incurred by the decedent in his or her lifetime, probate distributes the remaining property among people as the will directs--or among surviving members of the family (heirs) and other claimants according to the judgment of the court. A person's assets can be comprised of real property or personal property. Real property can be homes, commercial buildings, raw land, or apartments. Personal property includes vehicles, furniture, jewelry, clothing, and knickknacks.

Specifically, probate does the following:

• Proves in court that a decedent's will is valid.
• Pays debts and taxes incurred by the decedent in his or her lifetime, including monthly mortgage payments on the home.
• Distributes the remaining property among people as the will directs--or among surviving members of the family and other claimants according to the judgment of the court.

Will Having a Will Avoid Probate?

Sometimes the person dies with a valid will, which means the person died "testate" and the decedent's estate will be transferred as described in the will. On the other hand, a person may die "intestate," meaning without a will. If a person dies intestate, the decedent's estate will be transferred according to state law. In either scenario, the probate process entails gathering and accounting for the decedent's assets, ensuring debts, creditors, and taxes are paid, and distributing the remaining estate to the appropriate heirs.

A will doesn't avoid probate, it initiates it.

It doesn't matter whether the late owner has a will, estates must go through the probate process. And probate can be a lengthy process. Because of the enormous volume of cases--almost 2 million each year--and the enormous backlog within the judicial system, probate cases can take an average of three years to settle. That's a long time for loving, but eager heirs.

How to Avoid Probate for Your Estate

While you'll want to consult your own legal or tax advisor, most experts agree the best way to avoid having your own estate go through the probate process is by setting up a living trust. Living trusts enable you to avoid probate completely and cost much, much less than probate. Nowadays, a living trust can be set up for $1,500 and often much less.

When you set up a living trust, that trust is considered a separate entity--one that is apart from you. Think of it as a corporation--a separate legal entity. If you fund a trust, that trust owns your property, which means it can continue even when you pass away.

Probate courts have no jurisdiction over property owned by a living trust. After your death, property in the trust can be distributed, privately and easily, to your family or friends with no interference by probate. One caveat: When your property changes--when you sell one home and purchase another one (or several as a real estate investor)--make sure your living trust is updated to reflect your changing circumstances. You don't want to pass away with an outdated, inapplicable living trust.

Why is this so important? Because in order for your estate to avoid probate, all assets that require title, such as checking accounts, safe-deposit boxes, stocks, bonds, automobiles, or real estate, must be in the living trust. If they are not, a probate must be initiated. In fact, if even one of these items is not included in the living trust, probate is required. So make sure you keep your living trust current.

By setting up a living trust, you are making sure your assets never become an investment lead for someone else! In fact, you will eliminate the need for your heirs to even go through the lengthy and costly probate process at all. Check with your financial advisor for the details of getting a living trust initiated. Don't wait until it's too late. One day, your loved ones will thank you for it.

Visit the Trump University website to learn more about wealth creation strategies.