If you have assets here in the US, you should use a Nevada Asset Protection Trust to shelter those assets from lawsuits.
It doesn’t matter if you live in Nevada, you can take advantage of the wonderful protection that is provided by Nevada laws.
Fortune 500 companies take advantage of Delaware corporate laws even though they are not located in Delaware.
And you can take advantage of Nevada trust laws even though you aren’t located in Nevada.
Under the Full Faith and Credit clause of the US Constitution, sister states are required to honor the laws of sister states. So, even if your state doesn’t have asset protection trust laws, the court is required to apply the law of the jurisdiction where the trust is located.
Now, there are practical things you should do to ensure that you take full advantage of the Nevada law. If you have liquid assets, I recommend that you place those assets in the trust through an institution located in Nevada. If you own companies, those companies should be Nevada companies. This isn’t a requirement, but we don’t want to leave the constitution open to interpretation by a local judge.
If you don’t like the idea of having a Nevada trust, what else are you going to do? Having read the statutes of other states, they don’t come close to carefully crafted laws here in Nevada. While they aren’t perfect, they are the best thing available.
If you have several companies, what is the best way to structure them? Should you or your trust own them or should you consolidate them into a single holding company and have that company owned by you (or your trust)?
A company that owns other companies is called a holding company. Its purpose is to consolidate all your companies into one structure. It appears to make administration easier because now you only own one company. The other companies are subsidiaries of the holding company.
I don’t like holding companies for two reasons.
First, it doesn’t ease any administrative burdens. In fact, it adds to the burdens because you have an extra company, the holding company, with all its reporting and bookkeeping requirements. Plus there are the added legal and filing fees.
Sometimes a holding company will be created for tax administration. Usually, this is the case where the holding company is taxed as a C corporation. Perhaps in that case, a holding company can reduce administrative burdens, but for personal holdings we often don’t use C corporations.
Second, it reduces the amount of asset protection. If you are sued and the sole asset you own is the holding company then once your creditor pierces into that company all the assets of that company are available to the creditor. Whereas if you didn’t have the holding company, the creditor would have to pierce through each company to get to the assets.
If you own multiple LLCs rather than a single holding company, it makes it more complex for your creditor to get to the assets. If there is a charging order against your ownership in one company, that doesn’t mean there is a charging order against the other.
Turns out I have a much deeper reason for doing asset protection. Our freedom is being assailed at every angle. Things are getting tighter and tighter. Both sides of the political spectrum are getting more and more radical. It’s getting harder for small businesses to succeed. Taxes are rising. Hyperinflation appears to be on the horizon. Licensing boards are getting more unforgiving. Lawsuits are a common threat. Corporations are getting so large that we appear to become puppets of a few power-hungry, greedy boards. Wall Street hides behind prospectus reports that are nearly incomprehensible to the common person. Our government is so socialistic that the drive of achieving the American Dream seems an evil that was only pursued by the greedy in a time soon to be forgotten.
What’s going on here?
Has our entire world turned upside down?
I am a simple person. I have six children. I’ve been married for 14 years. I am a lawyer. I sacrificed to go to school to increase my earning potential and be able to help people in a meaningful way. I want the best for my children. I want them to get a great education and have a life of relative comfort. I want them to be moral and productive and to have kids of their own and to make a meaningful contribution to the world.
But I’m concerned that what I’m trying to build and save won’t amount to anything because the world seems in turmoil.
And I know there are a lot of people out there with the same concerns.
So, I have one small way to make a contribution in my profession. There is still some hope for the little guy. There are still a few laws that, if you know what they are and how to take advantage of them, can be used to protect what you and I are working to build for our families. Those who know about these laws and use them can have hope for a better world for themselves. Those who don’t use these laws are out in the cold where they are going to get beaten down by the decay of our society.
I hope you can learn from me what I have learned and take advantage of what is out there to protect you and your family. I am doubling my efforts to do more workshops, more seminars, more teleconferences and more one-on-one meetings to teach you. And yes, I get paid for it. I think the difference, however, is that I’m lucky. I’m lucky that I get to be paid to help people with something that I have so much passion about. Something that in some small way is making the world a better place. Because by protecting your assets, I’m protecting your family. And the family is the most fundamental and important unit in society. When the family unit crumbles, so will our great nation.
Yesterday, I introduced the concept of the Entity Asset Protection Trust and the duel reasons for its formation: outside and inside protection.
If the company that forms the trust has its own liabilities, that is referred to as inside liabilities. Inside liabilities could arise from a variety of factors such as breach of contract, employment issues, etc.
In this situation, the company can form a trust, place the assets in the trust and shield the assets from liabilities. A simple yet elegant solution.
If you have a company with assets you should be concerned about protecting those assets from both inside liabilities and outside liabilities.
Outside liabilities are the liabilities of the owners of the company.
Inside liabilities are the liabilities of the company itself.
If the owners of the company are sued, then all the assets of the owner could be seized. To prevent the judgment creditor (the plaintiff that won the lawsuit) from getting the assets of the company, the company should be a limited liability company formed in Nevada, Wyoming or Delaware (there are a few other states that offer great protection, but these are my favorite). These states offer charging order protection as the sole remedy available to the creditor.
If the company has assets, the assets can no longer be distributed to the owner if the owner is under a charging order.
That’s where the Entity Asset Protection Trust comes in.
The LLC forms a trust and places its assets in the trust. The trust is a self-settled spendthrift trust organized under the laws of the State of Nevada–Nevada has the best statutes for these type of trusts. The owners are the beneficiaries of the trust in the same proportion as they have in the ownership of the LLC.
Now, the trust can make distributions to the beneficiary (owner) even though the owner cannot receive distributions from the LLC directly.
I’ll discuss the benefits of forming an Entity Asset Protection Trust to shield from inside liabilities in my next post.
