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By Liza Horvath


Asset Protection


Living in a society that has clear property ownership laws and strong means by which to enforce these laws is – for the most part – great. It is the underpinning of a stable and safe community where wealth can be built and, if a disagreement arises, equitable resolutions can be found.  Property titles are carefully logged, recorded in the public records, and traced fairly easily from owner to owner. Unfortunately, this meticulous and public record keeping can also expose our soft financial underbellies to creditors seeking to grab our hard earned assets.


The use of insurance is a good starting point when trying to protect assets in a judicial system that seeks to be fair – and for the most part is – but is also susceptible to juries that can be overly sympathetic and perhaps unrealistic when awarding damages. Fair or not, with increasing wealth, many become increasingly concerned about losing it all by lawsuit.


Besides buying good insurance, what other means are available to protect our assets? Asset protection through the use of family trusts has been the cornerstone of estate planning since the Magna Carta. These days, setting up a trust to keep an inheritance out of the hands of a spendthrift child, his creditors or his soon to be ex-wife, is done by average Americans all the time. Be advised, however, that setting up a trust for a beneficiary – often referred to as a third party trust - is very different than setting up a trust to protect our own assets. The typical California revocable trust agreement will do little, if anything, to keep creditors out. A number of states – South Dakota, Alaska and a few others – have intentionally sought to provide safe havens for trusts that provide protection from a creditor’s judgment. Under South Dakota law, a California resident can transfer assets to an irrevocable trust and as long as certain criteria are met, the assets should remain shielded from lawsuit. Strict rules govern asset protection – not the least of which is the felony called fraudulent conveyance – moving assets out of your name when you become aware or should have known that you are about to get sued.


A popular and mostly successful method to safeguard personal assets is through the use of a corporation. If you are conducting a business that is high risk – think doctor, investment manager, builder, using a corporation with adequate professional liability insurance should protect your personal assets.


Equity stripping is another means by which some seek to protect personal real estate. In this method, the owner obtains the largest amount loan or line of credit on the property, and removes the “equity” from the property. This way, if someone obtains a judgment and liens the property, it is essentially of little value. Equity stripping is hugely risky and should only be pursued after considering all the ramifications.


For many, insurance and possibly a trust for our heirs will be the easiest and least expensive form of asset protection. However, if you are in a risky profession consideration should be given to other ways by which to insulate assets and frustrate potential creditors.


Liza Horvath has over 30 years experience in the estate planning and trust fields and is the president of Monterey Trust Management, a financial and trust management company. This is not intended to be legal or tax advice. If you have a questions call (831)646-5262 or email liza@montereytrust.com










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