Common Asset Protection Myths and Misunderstandings
My assets are protected because they are in a trust: Rarely. If you created the trust and put your assets into it, and it is not an irrevocable trust, they are as exposed as if you owned them individually. Most trusts are revocable trusts. Revocable trusts do not provide asset protection to the people who formed them. They usually provide asset protection to your heirs. Moving assets to an irrevocable trust and secure asset protection is possible, but it is complex and seldom the best option. Wisdom indicates that the problem with irrevocable trusts is that they are irrevocable. Once formed, they are difficult, if not impossible, to change.
My assets are protected in an LLC, Limited Partnership, or Family Limited Partnership: Sometimes, but usually not. Your LLC, Limited Partnership, or Family Limited Partnership assets may almost always be lost to a lawsuit directly against the entity. If you are sued personally, they can still be lost via “outside” liability. If you are sued personally, a creditor may be able to seize ownership of your business or its assets. This is a dynamic area of law in Texas where much uncertainty exists. These issues are discussed in “Barbarians at the Gate” and “Much Ado About Nothing” articles.
I can move assets to a safe place when I think I might get sued. Absolutely not. Once you are on notice of the potential of a claim, any transfer of assets is presumed to be fraudulent. Such transfers do not protect assets and invite substantial legal penalties.
Asset protection will create additional taxation. Most asset protection entities are “pass-through,” and federal taxes, if any, are paid via your personal tax return. Most also have an annual cost, generally under $300 a year.
I don’t have many assets. Perhaps, but I would urge that the value of your acquired assets is only one of three critical factors. The others are: how much can you afford to lose, and how likely will you lose it? We have clients with hundreds of millions of assets and limited asset protection and clients with one million with asset protection. Consider as an example that a business owner in his 60s and one million in assets can usually ill afford to lose what he has. Additionally, if most of your assets are exempt, asset protection is probably unnecessary.2
Feel free to contact us if you have questions regarding the dangerous waters of Texas asset protection strategies.
1Nothing herein constitutes legal advice. Proper direction required review by an asset protection attorney.
2Exemption law is complex and stems from both state and federal law. However, the most important exemptions are a Texas homestead and qualified (ERISA) retirement accounts.
Chris Vickers -Member – Multi-Million Dollar Advocates Forum - limited to attorneys who have won a multi-million-dollar jury verdict.
Chris Vickers was named a “Top Attorney” in Business law by a vote of peers as published by DFW 360 Magazine in Jul. 2020 and Jul. 2022.
Chris Vickers was named a “Top Attorney” in business/commercial law by a vote of peers as published by Ft. Worth Magazine, Dec. 2015.
Robert Stanulis was named a “Top Attorney” in Business law by a vote of peers as published by DFW 360 Magazine in Jul. 2022.