U.S. citizens and residents with assets or insurance
are becoming targets for entrepreneurial plaintiffs and lawyers who are looking
for a big payoff. It's no longer just a case of suing someone after they
injure another party. Now the lawyers are engaging in proactive "marketing"
to find people they can sue. Finding a "victim" is no longer very difficult.
The United States is one of a few countries in the world
where lawyers are permitted to receive contingent fees based on the amount
of a judgment for their client. Lawyers working for a contingent fee have
far better odds of making a million dollars or more on a single case than
any lottery contestant.
A widely quoted statistic is that there are more than 700,000
lawyers in the U.S.. However, all of these lawyers aren't involved in suing
people. There are about 66,000 lawyers who are members of the ABA Litigation
Section but only about 1/3 of the lawyers belong to the ABA. If litigation
lawyers are typical, there are about 198,000 lawyers who are in the business
of suing people. That means that for every 400 families in the U.S. there
is one lawyer who is looking for someone to sue. If those layers only concentrate
on the top ten percent of the market, that means they will be looking for
just forty people to sue out of that group of 400 families. If you in are
that top 10%, there is a lawyer somewhere who is just waiting for you to
make a mistake - any kind of mistake.
Anyone
with Assets is a Target
If you have money (or insurance), you are at risk. In 1989,
1.2% of all families with an income over $50,000 were sued in a U.S. District
Court. And that's the tip of the iceberg. Here are a few of the excuses that
can be used by legal predators to confiscate your assets.
Personal injury claims or divorce
Civil rights violations
Environmental cleanup liability
Malpractice and product liability
Employee injuries
Occupational Safety & Health Administration violations
Federal and state tax liens
And ... you can also be held liable for the acts of your spouse, your children,
your employees, your partners, and anyone who uses any of your property or
is acting on your behalf. Fault or negligence is no longer necessary to
be held liable for someone else's injuries or damages. The courts and
the juries are far more concerned about finding some way to help an injured
plaintiff than about whether the defendant (you) is really at fault.
What Can You Do To Protect Your Assets?
Here are two paradoxes for you. The safest way to legally avoid paying income
taxes is to avoid having any income. And ... the best way to avoid losing
your assets if you are sued is to be devoid of any assets. While each of
these two statements might seem to be contradictory, they accurately describe
how the wealthy are able to minimize their taxes and protect their wealth.
For example, "income" for tax purposes is defined by the
law. You may have economic income without having taxable income. Interest
on tax exempt bonds isn't considered income for federal tax purposes. The
gain on assets that grow in value isn't currently taxed.
"It's not what I own, it's what
I control that really counts."
This is a quote from a wealthy individual who understands
money. This person had given control of his business to his adult children
and his retired parents. But he is confident that his children are unable
to use the business to make money without his participation. He is the real
source of the money. The legal ownership of his corporation is of far less
importance than his ability to control the business. For the same reason,
politicians have power without ownership because they
can control other people's assets.
There are a mind boggling variety of ways that people
use to retain a substantial element of control without retaining unrestricted
ownership. Here are a few of the more popular methods. (Please note that
these are not all legal methods of asset protection.)
Transferring assets to safe family members
Securing assets with loans from other family members
Hiding non income producing assets in obscure places
Using a corporation for business activities
Putting assets into a limited partnership
Putting assets into an irrevocable trust
Putting money into life insurance owned by others
Giving money to a charitable trust or family foundation
Moving money into offshore trusts or corporations
Some people seem to think that the last strategy is the only strategy used
to protect assets. A reporter from the L.A. Times called to inquire about
my newsletter and made the following comment regarding the concept of asset
protection.
"I thought that only drug dealers
and
swindlers used offshore trusts."
Offshore trusts are only one of the many devices used
by the wealthy to protect their assets from predatory plaintiffs and lawyers.
There is little doubt that those who operate outside of the law will use
the law to their advantage whenever they can. However, the offshore asset
protection trust is the final step for the law abiding citizen. It's
the last resort for those with a lot of money. Asset protection is not just
about offshore trusts. It's about a variety of legal strategies and techniques
to use the protection of the law to avoid unnecessary losses. It's about
finding ways to change the legal form of ownership of your assets without
losing effective control of the assets.
Most people with modest estates are at great risk simply
because of the common practice of putting property in joint ownership.
Creditors of either owner can take jointly held property in most states
. Of 18 million businesses in the U.S., over 70% are unincorporated
proprietorships. While a corporation isn't a perfect legal protection, it's
a very economical way to reduce your exposure to some types of losses. These
are simple lawsuit protection strategies that are not expensive or even complicated.