Rob Lambert lost every penny in the 1980s, so he started Asset Protection to tell other people how to protect themselves.
By Susan Decker You’ve worked hard to get where you are. And you’ve accumulated a home, a couple of cars and a substantial amount of money. But a business failure, or a lawsuit by someone who claims you injured them, could take it all away. How do you protect yourself and your family? The answer could be as simple as putting your home or business in the name of your spouse and children, or as complex as an offshore trust. In the 1980s, Rob Lambert overextended himself buying real estate in the spiraling New York market. When property values took a dive, he lost every penny he had. “I didn’t have the brains to take a portion of the money I had made and put it into a protected environment,” he says. He started Asset Protection to tell others how to protect their assets. Lambert, who wrote Asset Protection Trusts, also owns a recording studio in West Hollywood, Calif., with his wife, country singer Kelli Lidell.
Fear of lawsuits
Today, fear of lawsuits and a desire to protect a home and fortune — of whatever size — is driving a rise in the number of lawyers, financial planners and accountants who specialize in protecting people’s assets. The American Bar Association’s lawyer locator service lists 236 lawyers specializing in asset protection.
“People are seeing what the risks are. They see the news about outrageous verdicts,” says lawyer Robert Mintz of Del Mar, Calif., who has specialized in asset protection for 20 years.
The biggest jury verdict in 1998 involved a Texas businessman who claimed his partners pushed him out of the firm he founded. A jury awarded him $1.5 billion, according to Lawyers Weekly. Such outsize verdicts usually are reduced on appeal or by settlement. Still, there is reason to be concerned.
“People are probably of the belief they won’t be sued. Unfortunately, that’s not the case,” says Don Griffin, a director with the National Association of Independent Insurers.
Forty-one percent of people involved in auto accidents in 1997 retained a lawyer, and “it doesn’t take an exorbitant award to devastate a person’s finances,” he says.
Some unscrupulous people use asset protection tactics to hide from creditors or to try to duck the Internal Revenue Service. But there are many more legitimate uses, says New York attorney Gideon Rothschild, chairman of the Bar Association’s committee on asset protection.
“If I’m a gas station owner who can’t get insurance for environmental claims, and I sell the station, does that mean for the rest of my life my assets are exposed?” he asks. “People should know there are legitimate steps they can take at the right time to protect themselves.”
The “right time” is before a lawsuit is filed. If a judge thinks you set up a trust or put property in your spouse’s name to avoid paying a debt, you could be in trouble.
Some strategies to discuss with an expert:
- Insurance. Insurance usually is the first line of defense from a lawsuit, experts say. Standard homeowners and professional malpractice policies cover general liability and provide a lawyer to defend you when someone falls on your property or claims you were negligent in your profession.
A separate “umbrella” liability policy that kicks in when regular insurance benefits are exhausted will handle most big claims.
- The law. No creditor can get at the money that’s due you under an employer-provided pension plan. That’s protected by federal law.
Beyond that, rules on what a creditor can force you to give up to pay a debt or a judgment vary from state to state.
Some states protect your home, 75% of your income and any retirement accounts.
- Titling. If you think you might be sued, put assets in the name of a spouse or family member who is at a lower risk of lawsuits. This works for small amounts but can cause problems with estate taxes if the amount gets too large.
Also, you can lose control of assets that are legally in someone else’s name. Joint ownership usually is a bad idea for a variety of reasons. If you get sued, everything that is jointly owned can be in taken.
- Businesses and real estate. Limited partnerships and limited liability companies split ownership in an attempt to keep creditors from seizing businesses and real estate. A basic family partnership involves giving each member of your family a share of a business, with no one having a majority share.
Kansas accountant Vernon Jacobs runs an asset protection newsletter. His small publishing company is split among family members. If a creditor comes after him, “they have to deal with my wife and daughters.”
- Trusts. Offshore trusts are popular because a judgment from U.S. courts may not be recognized in another country. But they are controversial. Some states also have enacted protective trust laws, but they haven’t been tested in court.
“I think asset protection is being oversold and overmarketed. People are sold an offshore trust for $20,000 when they are better off with an umbrella (insurance) policy,” [assuming they can get proper coverage….which they can’t at any price, says Rob Lambert] says Jay Adkisson, an Irvine, Calif.-based asset protection lawyer whose Web site (www.quatloos.com) exposes scams involving asset protection.
Behind most asset protection is a simple premise — the less money available to someone who might sue you, the less likely you are to be sued. A $10 million malpractice insurance policy or a fat bank account can get lawyers salivating.
Shrink the pot, and fewer will bother to sue.
Anyone with some money saved needs some level of protection. How much depends on how big your bank account is. A lawyer, financial planner or accountant should be able to help you decide how far to go.
NOWHERE TO HIDE
From the June 14th issue of Time Magazine, page 248
TIME Magazine recently wrote “Putting your assets in a trust, in banking friendly nations such as the Cayman Islands is becoming popular. And it can protect assets if you get sued. But foreign trusts do not excuse you from paying taxes. Yet that’s exactly the tip you’ll get from thousands of websites offering “expert” advice on moving your money offshore. If the site recommends a “pure” or “constitutional” trust, steer clear. Read about this and other traps and scams at www.assetprotectioncorp.com”