Sunday, June 13, 2010

Asset Protection for Police Officers and Detectives

Lately, I have been asked more questions about asset protection for police officers and detectives. Asset protection is a legal concentration, which is concerned about placing assets such as real estate, certificate of deposits, investment and vacation real estate, and other assets beyond the reach of lawsuits and punitive damages.

Asset protection is important for police officers and detectives because privacy is a main goal of asset protection. Often times, I met with police officers or detectives and their addresses are public record. This is a big no-no. A private land trust is a great mechanism to keep your own address secret. Keeping your property outside of your personal name is a basic asset protection strategy. It is important because a creditor or aggressive plaintiff often times will not sue you if they do not think that you have sufficient assets.

This past Friday, I was at the Circuit Court of Markham and had a criminal defendant that asked me whether I could represent him in a lawsuit filed by his police officer that arrested him for selling drugs. My answer was "No", but obviously this is a prime example of why police officers must protect their personal residences and assets.

Asset protection utilizes trusts, personal residence trusts, family limited partnership/LLCs and irrevocable trusts to protect one's assets. A personal residence trust is a trust that owns your house and/or any vacation or investment real estate. The title holder of the property is the personal residence trust. Thus, the title to the property is outside of your personal name. The beneficiary of the personal residence trust is typically an irrevocable trust or family limited liability corporation or family limited partnership. Liens and judgments do not attach against a personal residence trust because the property is outside of your personal name. Typically, a personal residence trust or otherwise known as a "private land trust" is not a full proof way to structure your real estate interests. There are ways to use a private land trust and make it a good aset protection tool.

Creating a family LLC/Partnership as the beneficiary of a land trust is one way to increase the asset protection of a private land trust. The family LLC/partnership is a mechanism where a police officer and their wife (if applicable) are the managing owners of the LLC. For example, ABC, LLC has voting and non-voting shares. Jim is a detective and Sue is Jim's wife, which is a teacher. Jim and Sue each own 1 percent interest in the voting shares of the LLC. As managing members or managers, Jim and Sue have the ability to control the Family LLC/partnership. Jim and Sue only have 1 percent interest in voting shares because they want minimum level of wealth in the non-voting shares. Jim and Sue and one other person take a total of 98 percent of the Family LLC/partnership as non-voting owners. The benefit of non-voting owners is limited liability protection. The liability exposure of non-voting owners is your initial contribution. For example, if Jim and Sue make each $250 initial contribution to gain 98% ownership of the non-voting shares of the Family LLC/Partnership, their maximum amount they may lose is $250 per person. Therefore, most of Jim and Sue's assets will be placed in the non-voting shares, which means that their non-voting shares become untouchable by lawsuits, judgments, and punitive damage awards.

The benefit of a family LLC/Partnership is that a creditor may not foreclose your Family LLC/Partnership. A creditor may only have a charging order against the Family LLC, which means that the creditor only gets the debtor (Jim)'s interest in the Family LLC/Partnership. As managers, Jim and Sue may elect to distribute the Family LLC's assets to each other. In real terms, Jim and Sue will not make any distributions and the creditors only have a tax liability. This discourages your creditor(s) from going after you. For maximum protection, Jim and Sue each will own either a family LLC, which will be managed by Sue or Jim and Sue will have their own irrevocable trust. An irrevocable trust is a trust that is unamendable and unchangable. Thus, Jim's interest will be managed by Sue or somebody else, while Sue's interest will be managed by Jim or somebody else. We can include a provision in the irrevocable trust where the trustee changes if a creditor has filed a lawsuit. We also can have a Trust Protector, which is typically an attorney that oversees this provision and makes a judgment whether the trustee should be replaced. This enables Jim and Sue to gain additional asset protection. It is more difficult to seize Jim and Sue's assets when Jim and Sue do not control their assets. Thus, we have a lot of mechanisms in place to protect Jim and Sue's assets from creditors. First of all, we can include additional measures if Jim and Sue want the additional protection, which will make their assets unavailable such as a mortgage or security interest. I have decided that I am going to write an Asset Protection Guide for Police Officers and Detectives. This guide will be more comprehensive and better explain asset preservation planning is simplier and easier terms.

Sean Robertson is an asset protection attorney that concentrates in estate planning, asset protection, and advanced planning. Sean Robertson can be reached at 312-498-6080 or 630-364-2318.

1 comment:

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