You are under attack.
Increase in losses by the P&C insurance industry over the last decade.
Small businesses are being targeted by lawsuits due to their inabilty to spend the money to defend themselves.
Each year more and more tax laws are passed and countless more predatory lawsuits are filed in a crusade for the money of investors, business owners, and their employees.
The money they spent a lifetime earning honestly.
Insurance companies are a massive target too and are now increasing prices, denying more claims, and adding more exclusions to their policies than ever in history to make up for their mounting losses.
People are getting sued when their insurance won't or can't cover the full extent of damages that plaintiffs are claiming, damages that often get inflated by their attorney so that their share of the winnings can be bigger.
These aren't criminals we are talking about, these are good people. The builders of society.
But the justice system says that if they are 1% negligent, they can be held 100% liable.
This means that people can be forced to pay for damages that they didn't even personally inflict. A scenario that is becoming all too common.
These are known as predatory lawsuits and they often target people of the middle class because of their inability to bear the hefty legal fees needed to defend themselves.
As you can see, the justice system is being weaponized and used to get paid instead of being used to get justice while the government is raising taxes to pay for its dramatic increase in spending.
Good people of limited means are losing the assets they spent a lifetime building.
It's an epidemic.
You might be aware that the effectiveness of legal or tax specialists is by definition, limited. They must sacrifice other disciplines to become the very best at what they do.
It takes years to become an accountant or an attorney, and when they are good at what they do its a beautiful thing.
But, what happens when the advice or actions of these professionals affects other parts of your life that they are not trained in?
How could they know they are effecting something they know nothing about?
For example; when your accountant tells you to put all your assets in an S-Corporation because it will save you money on your taxes, they are right.
However, do they also tell you that the S-Corporation is one of the worst entities you could possibly put real estate in when it comes to asset protection? Your attorney would. But even if your accountant did tell you, they likely didn't offer a way around it for fear of giving legal advice.
When your attorney tells you to put your business or properties in an asset protection trust because it will place them beyond the reach of creditors and personal lawsuits, they are right.
But, did they also tell you that you could be taxed at 37% if the trust earns more than $13,000? Probably not, but your accountant would.
In this situation, most people will never know of the consequences of the one-sided counsel they receive. If they do find out, they go to a professional who will often undo the negative effects of what the other professional did... along with all the positives too.
The result here is that you end up playing an incredibly expensive game of monkey in the middle while the IRS and salivating plaintiff attorneys move in for the kill.
This multifaceted issue can be resolved when we sit down with you, an attorney trained in taxes, and an accountant trained in asset protection, and hammer out a customized plan based on what you want to accomplish.
This way each professional can focus on what they do best with the other professional right there ensuring that the client gets the best of both worlds.
Here is an interactive sample of what our team might craft for an AirBnB investor.
= Flow of control
= Flow of income
Hover over each icon to learn the principles we used in this sample scenario.
Relationship: Client & Trust
The Client is set up as the Grantor of this trust to control assets at arm's length. This trust is typically an IDGT and offers the following benefits:
Asset Protection: This Trust reduces the liability the client would normally face from regular business activities brought about by an LLC or Corporation. It can also place ownership stakes out of the reach of creditors to ensure they are passed on to the next generation.
Anonymity: What the Client owns on paper will be difficult to find, reducing the chances of predatory lawsuits being directed at the client.
Estate Planning: This trust is useful for estate planning and when set up with a Pour-Over Will ensures that the posterity of the client bypasses the probate process and the freezing of assets that would normally occur at the time of death.
Due-On-Sale Clause: Thanks to the Garn-St Germain Act, moving property into a trust cannot trigger the Due-On-Sale Clause because it is in an "Intervivos Transfer".
Simplified Taxes: Reduces the number of tax returns filed and avoids the heavy income tax bracket that trusts usually are subject to.
Relationship: Client & Wyoming LLC
Revenue flows to the client from the Wyoming LLC directly because it is set up as a pass-through just like the Holding LLC. This offers 3 benefits:
Asset Protection: Wyoming has limited the ways to collect a judgment against someone to a charging order exclusively. This means that if you lose a predatory lawsuit, the Plaintiff cannot then reach into your Wyoming LLC to take the assets it controls. WY Stat § 17-21-504 (2022)
Anonymity: Wyoming doesn't collect information on LLC members, keeping the identity of the client private.
Simplicity: Makes the overall setup easier for the client to manage, reduces the number of tax returns they would normally need to file, and consolidates their sources of income in the eyes of lenders, increasing the likelihood of getting a loan.
A trust is a legal agreement where one person (the Grantor) gives control of their assets to another person (the Trustee) to manage for the benefit of a third person (the Beneficiary). All trusts are either revocable or irrevocable and both types can be adapted to a wide range of uses.
Revocable Trust - A trust where the Grantor and the Trustee are the same people. Meaning the person who sets up the trust, remains in control of it and what it holds. This type of trust is often used to avoid probate in the estate planning process. This type of trust can also be used for anonymity, however, it is important to note that this trust cannot protect the assets it holds from lawsuits.
Irrevocable Trust - A trust commonly used to protect assets from lawsuits by giving up control over them and putting them far out of reach. It can also help qualify for medical assistance in hospice care or assisted living. Make note though, assets held in the trust may be taxed at 37% if the trust earns over $13,000 a year. This is why we use this type of trust to control things, but never to hold them.
Relationship: Trust & C-Corp
When the C-Corp is set up the majority (and only) shareholder of it is the Family Trust. This gives the Trust decent control of the C-Corp. Also, to avoid double taxation or the hefty tax that Trusts incur, the Trust receives no money from the C-Corp. The C-Corp is then able to offset profits using the wide range of deductible expenses that only C-Corp entities enjoy.
C-Corps are known for being taxed twice if profits are paid out as a salary, distribution, or dividend, however, if profit leaves the C-corp as an expense, this tax doesn't apply. There are several additional benefits to using a C-Corp that are not often talked about, including the following:
Furthermore, profits that are reinvested into the company are not taxed.
Profits and losses may be carried forward or back freely.
Flat 21% tax rate if it nets a profit. Compare this to the 35%+ tax rate of LLCs.
No limitations on forms of ownership.
Governed by federal law, rather than state.
Entity: Wyoming LLC
Wyoming is used as a state for filing LLCs for 3 major reasons:
Asset Protection: Wyoming limits creditors' ability to collect on a debt to a charging order exclusively, meaning that they cannot force a sale of the assets within the business.
Anonymity: Wyoming has strict privacy laws when it comes to sharing public information about LLCs, and does not collect information on members.
Taxation: Wyoming has no state income tax or franchise tax.
Other notable states include Delaware, Nevada, Alaska, and North Dakota. The latter of which also has no state-level capital gains tax in addition to no state income tax.
Relationship: Wyoming LLC & Holding LLC
The holding LLC is set up as a pass-through entity owned by a Wyoming LLC. This allows its profits from renting assets to the C-Corp to flow through to the Wyoming LLC without it needing to file a tax return.
Relationship: C-Corp & Holding LLC
Assets owned by the Holding Company are leased to the C-Corp allowing it to use them to generate revenue without having to own them, which is far less risky to those assets and the LLC which holds them.
Furthermore, since the C-Corp needs to pay rent to the Holding LLC in order to use these assets this transaction also pulls profits out of the C-Corp as a rental expense being paid to an LLC, rather than those profits being paid out as a salary to its owner which helps bypass the issue of double taxation.
Entity: Holding LLC
Typically formed in the same state where its services are provided or assets are located. However, the traditional holding LLC does not provide as much protection as commonly believed due to its lack of a clear business plan, insufficient funding, and limited function beyond asset holding, making it easier for creditors to penetrate.
Additionally, holding LLCs often interact directly with the public, exposing the assets they hold to significant liability. It's important to note that in some states, a single-member LLC may not protect its assets against the owner's personal liabilities.
Relationship: C-Corp & Public
All business income initially comes from tenants/clients/customers paying for something. These products and services are provided by the C-Corp. This means that it is the brand and active business that is signing documents and dealing with customers directly, exposing it to a large amount of liability. To generate revenue it leases assets from the Holding LLC and then subleases them to the public, or alternatively, provides a service using those assets.
Doing this now is vital because of something called a Cause of Action, which is an event that triggers a lawsuit.
When one of these trigger events occurs it's as if time is frozen, and the way your assets and business are structured at the time of the event are basically frozen too.
At that point, if you attempt to set up a legal structure after the fact, during the trial the court may consider this a voidable transfer under the UFTA.
The UFTA is a set of laws that allows the winner of a predatory lawsuit to reverse the transfer of any assets that were moved after the date of the trigger event.
In other words, if you think you are going to get sued, the cause of action probably already happened and it is most likely too late to protect your assets.
No one knows what might happen tomorrow which is why it's important to take action as soon as you are able to, and why it could be so costly to postpone.
Call us today to get started.