We live in a big world … one that offers benefits to those willing to step outside of their comfort zones.
In Part 1 of Cover Your Assets, we discussed domestic structures that can isolate and protect your assets in the case of legal trouble.
In Part 2, we’ll look at the bigger picture of asset protection.
We’ll discuss international asset protection structures and long-term wealth protection strategies … and we’ll also talk about what investors can do to protect their privacy and take advantage of tax laws.
It might sound complicated … but luckily, our guest Kevin Day is an expert in offshore asset protection and came on the show to simplify the topic for us.
In this episode of The Real Estate Guys™ show you’ll hear from:
- Your world-traveling host, Robert Helms
- His channel-surfing co-host, Russell Gray
- Best-selling author and lawyer Kevin Day
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Trusts 101
Kevin sat down to chat with us in breezy Belize.
He points out that U.S.-based investors have to be on their A game … because in this country of extreme litigation, “A lawsuit is equivalent to a lottery ticket” … for the person suing YOU.
One way to protect your wealth from lawsuits? Trusts.
Kevin took us through a brief history of trusts in the U.S.
Trusts were formerly designed solely to transfer wealth from one person to another. Revocable trusts were invented in the 1930s to allow people to set up a way to transfer their estates … and make tweaks to the structure along the way.
It wasn’t until the 1980s that the U.S. allowed people to name themselves as the beneficiary of a trust for the first time.
These trusts allow you to segregate your assets … so you still have a decent lifestyle and you can reduce your liability.
“It’s a way to firewall the various parts of your life,” says Kevin.
Trusts are unique because they don’t have an owner … they exist independently from you. That’s why their lawsuit proof, says Kevin.
If you set up legal structures, including trusts, while the seas are calm, you’ll be able to handle the lightning when it comes.
And once you go through the process, you can pay more attention to MAKING money than PROTECTING your money.
Getting started
Although setting up trusts can seem tricky, it isn’t that overwhelming if you take it step by step. Investors should get started early.
Most lawyers don’t teach clients about inter-entity planning … but when Kevin gets new clients, he takes them through a step-by-step process to help them protect their assets.
Kevin starts by completing a liability assessment to see how much liability the investor holds.
He looks at what protections that investor already has in place. This includes projecting the investor’s future plans to develop a streamlined structure. Assets are divided into three categories:
- Zero-liability assets, like your cash portfolio.
- High-liability assets; for example, a company that has employees or uses third-party providers
- Assets that are in between, like real estate … high-value, high-liability assets are included here.
He uses these three categories to see how exposed clients are. He then checks to see whether investors are holding the proper insurance … usually a moderate amount.
After that, he works with the client to set up the appropriate structures that will provide the most protection in the simplest way.
Are you an investor wanting to get started with a trust? Kevin suggests building up to an offshore trust by setting up a domestic trust with decanting provisions that will allow it to move offshore gracefully.
The WHEN and WHY of international trusts
We asked Kevin when it was appropriate for investors to consider offshore trust options.
He told us that investors with a net estate of over more than 4 million … and that includes their home, business, and rentals … should absolutely set up offshore options.
That’s the point where all your creature comforts are taken care of and any extra money you’re taking in goes toward growing your real estate business.
Under 2 million, an offshore trust is not appropriate, simply because of the cost-to-benefit ratio.
Between that 2 and 4 million mark is where there’s some leeway. If you have a high-liability business, you probably shouldn’t go international. But if you’ve just hit a home run and you’re growing exponentially, then you should consider an offshore account.
Offshore options allow investors to lower their profile in case of a lawsuit, says Kevin. Lawsuits feel like blackmail … and what you look like from a public view will change the lawyer’s perspective.
Trusts can help you manage privacy concerns about how much of your wealth shows up on the public record.
Why is this so important? If you’re sued, there’s a discovery period where the other attorney can look at your assets.
Eighty percent of the time, says Kevin, those attorneys don’t look into how your assets are structured … and the other 20 percent of the time, they see international structures and think getting that money is more trouble than it’s worth.
Worry less with offshore trusts
Kevin says investors have three things to worry about:
- Taxation
- Privacy
- Asset protection
According to him, the great thing is that trusts help in all three areas.
Lawsuit protection trusts are tax neutral … and don’t rely on keeping secrets from the IRS. They also offer complete bars to anyone who wants access to your money.
What if you own property offshore? Americans who own foreign companies don’t have to pay tax until their income is repatriated. Setting up your income to be non-subpart F can be very easy, says Kevin … with the right professional help.
There’s no point in building up your assets without also protecting them so you don’t lose everything when disaster strikes.
Exploring your opportunities for asset protection means looking at offshore options.
So much real estate education is fun and aspirational. Asset protection is a down-and-dirty topic … but it’s SO important.
Being a real estate investor means dealing with real threats and the possibility of bad deals and mistakes. It’s essential to discuss what could go wrong … while everything is still going right.
That’s why we’re so glad to have an expert in offshore protection in our fold! We want YOU to know your options for asset protection so that if the lightning hits, you can have one piece of your business fail without everything else falling apart.
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