Brian of Bradley Legal Corp. is an asset protection attorney for investors, high-risk professionals, and high-networked families. He gives clients peace of mind by protecting what they have. He’s been selected to the Super Lawyers List, Lawyers of Distinction List and nominated to the Top 100 High Stakes Litigators List. Brian writes about asset protection for the Oregon State Bar and acts as chief knowledge officer for other law firms and businesses. In this episode, Brian talks about asset protection and how real estate investors can protect their portfolio with offshore Bridge Trust accounts.
Asset protection is not the traditional estate planning most people know. It is about “lifestyle preservation” by fighting against predatory lawsuits. It uses a combination of advanced estate planning, strategic planning, insurance law, real estate law, business organization, investment strategy, and tax law.
Brian works with clients who have outgrown the limited liability company (LLC) setup. In his firm, for an initial startup cost between $25,000-30,000, they’ll put together the team and the structures.
Anyone who owns something needs asset protection. Brian suggests that people copy what the rich do and take out their personal name from their assets to decrease liability.
When it comes to asset protection, the level of protection should grow with the needs of the owner. This is because where you start investing isn’t where you are going to end up.
An LLC is the starting point where you put your real estate and other assets that can potentially cause harm to something. This includes houses or rental property where somebody got hurt while in that property.
LLCs provide a basic level of protection. But its protection of veil can be pierced, especially in states considered as unfriendly asset protection states like California. In some cases, you can still be held personally liable.
LLCs are affordable costing only $800 annually to maintain one. But there can be strong or horrible charging orders. Charging orders dictate how much a creditor can collect from the owner of an LLC. A good state charging order is the sole remedy of a creditor who is only entitled to the limited remedy of the charging order. States with horrible charging orders disregard the charging remedy. This is why people go shopping for different jurisdictions and states when starting an LLC.
Even if you have only one rental property, it is worth it to have an LLC. Insurance companies don’t cover fraud, punitive damages, intentional wrongdoings, and anything that is the direct result of unlawful acts. The second you own something that can potentially hurt someone, it is important to start planning how you are going to protect that. You would not want your other assets like stocks, bonds, and personal residences to be targeted by a lawsuit. Just one lawsuit can completely wipe you out.
An AMLP is a management company that owns all your LLCs and holds the bulk of your assets such as cash, stocks, bonds, receivables. It streamlines the tax filing process and opens the door to the next step which is connecting a domestic or offshore asset protection trust into it.
This setup leads to a delineation of ownership into general ownership and minority ownership. The client has general ownership and has control of the assets and holding company. An asset protection trust owns the AMLP, which owns all the LLCs. This way you get the use, enjoyment, and benefit out of the assets without having all the liability.
This offers the best home-court advantage. It makes lawsuits go away very fast. The power of offshore, foreign trusts like those in the Cook Islands is the statutory non-recognition of any other jurisdictional court orders. The person suing you ends up having to start everything from scratch facing the highest legal standard. They’d be spending a lot of money and could end up missing the one-year statute of limitations.
In this setup, the client is not in control of the asset which is now subject to a foreign trust. Annual maintenance costs are also higher at $5,000-10,000 annually. Compliance is more complicated as the Internal Revenue System (IRS) requires more reporting and asset disclosures.
In his firm, only 5% of their clients put everything in an offshore trust. This is only recommended if you are under fire and duress or very high profile and need to get out of dodge fast.
Examples of these include the Nevada Asset Protection Trust or Alaska Asset Protection Trust. Domestic asset protection trusts are less expensive. But they fail on effectiveness and control.
The foundation of asset protection is not needing to recognize a court order. Domestic asset protection trusts don’t let clients run away from legal claims in the U.S. This is because we have a Full Faith and Credit Clause.
We are also seeing a weakening of the purely domestic asset protection trust as courts start to disregard the trust jurisdiction selection.
The Bridge Trust was created 30 years ago, and it combines the best of both worlds. It allows you to cross the bridge to the Cook Islands if and when you’re under attack. When the attack is over, they move the assets back to the U.S.
The Bridge Trust is an irrevocable, tax neutral, grantor trust. The client still retains some power over the assets. You can use them however you want, manage them however you want, and collect what you want.
It is still considered a domestic trust, so anything in the trust does not have to be disclosed. You get both anonymity and privacy.
The Bridge Trust acts as the minority limited partner with a non-controlling interest and ownership interests. The trust owns the AMLP and the client retains control of the assets.
Initial startup costs for a Bridge Trust with AMLP is $29,000. Maintenance fees are also cheaper at $2100 annually.
This is for those with over $1M in net worth. Examples are doctors with a lot of visibility and targets of malpractice claims, a business owner who is investing, and people who own multiple properties who became successful real estate investors.
Here is an example. Put the first unit you’ve bought into an LLC. When you have four properties, divide the properties into two LLCs to split up the liability. Once you have a net worth of around $500,000-750,000, it’s time to start an AMLP. Those who’ve reached a million-dollar net worth and are accredited investors can begin the asset protection trust.
Don’t put a personal residence into an LLC, but put it into the trust to get the $250,000/$500,000 Home Sale Tax Exclusion.
No, this is all tax neutral. As long as you’re not trying to avoid paying taxes then it is alright.
No. A conveyance happens when you change ownership of the assets. There is no change in ownership because the Bridge Trust already owns the assets held in it.
There are laws that allow you to transfer a title out of your name into a trust. When you cross the bridge, nothing changes in title, only the trust moves.
Make sure to vet the process and work with established people.
Create a legal structure that requires the consent and approval of various parties who act as checks and balances on the assets.
Have a physical tracking mechanism directly within an independent bank to hold the money. This is so you always know where your money is.
Implement a two-party approval system for the legal control of the assets. The trust is only responsible for the management of the assets and the legal title, but it doesn’t have possession.
This way you have a three-way protection system with you, a trust protector, and the bank looking over requiring your consent.
It takes thirty days to set it up. It’s always best to be proactive and set it up while everything is peaceful and calm, and incrementally step up as you go.
Because of the weakening of out-of-state asset protection trusts, Californians can either look through offshore asset protection trusts or the Private Retirement Trust (PRT) Exemption Plan if they qualify for it.
The PRT has the same strength as a foreign asset protection trust, and it is a state-given, legal right. Only Californians can use it, and they are advised to max it out first.
It offers full exemption protection for any asset placed in a private retirement trust for the primary purpose of protecting those assets for your retirement.
The PRT is tax neutral. You can use it to protect a lot like cash, real estate portfolio, life insurance, private equity, corporate stock, and LLC memberships. Vacation properties and cars that you collect are not included.
Since it is made for Californians by Californians, it is not federally regulated.
It is a trust that you create that puts you through a qualification process. But only 65% of your assets can qualify based on your age, retirement plans, and total net worth. The matrix then comes up with a specific number that can be funded into this. So it works only for those with a net worth of $10M or more to allow for a larger exemption matrix. Extra planning will be done for the other assets in a foreign asset protection trust.
Asset protection is not illegal. It’s just protective planning. It provides the global, gold-standard for protection.
It isn’t tax evasion as long as you don’t have the intent to avoid taxes. You even get a bi-product of tax benefits because you use legal entities, and they give more tax deductions and write-offs.
Offshore trusts are not scams, but scams do exist. Think of the Panama Papers.
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