It has been reported that the United States has 5% of the world's population and 66% of the world's lawyers! Recent reports indicate that there are approximately 1.35 million lawyers actively pursuing clients who wish to file lawsuits. It's estimated that these 1.35 million lawyers file over 20 million lawsuits in the United States each year.

Statistics show that the average American has a 10 percent chance of being sued in any given year and a 33 percent chance of being sued at some point in their lifetime. The chances of an average person being sued increase greatly once that person begins to operate a business.

When it comes to a business owner, a plaintiff attorney is always looking to seize the assets, income, or funds of any insurance policy the business owner may own. However, suppose the plaintiff attorney is ever able to pierce the company's veil of liability protection. In that case, the prized asset that the attorney is looking for is the equity in the private family home.

The equity in the family home is also on the mind of the plaintiff attorney whenever he can file a lawsuit against a private person. The potential for a civil lawsuit to be filed against a private person is endless, as the 20 million lawsuits filed each year bear out.

Chances are good that you may have thought about the possibilities of losing your home as a direct result of a lawsuit being filed against you, either personally or as a direct result of something you might have done in the course of running your business. As a result, you may also have wondered if there is actually a way that you can protect your home from the very real danger of a devastating lawsuit.

If you have taken the time to investigate the various ways a private home can be protected from frivolous lawsuits, you likely discovered that there are many obstacles to properly safeguarding the private family home.

One method of protection might be to convey the title to your home into an entity such as a Limited Liability Company, a Limited Partnership, or a Corporation. If you have a mortgage on your home, two problems could arise if you were to take this route. The first problem is that if you change the title to the property, your mortgage company would have the legal right to call your loan due and payable at the time the title was changed. The second problem is that the IRS will only allow you to deduct interest that you are legally obligated to pay. Once the title to the home is in the name of your LLC, you no longer own the home. It would be difficult to explain to the IRS why you are trying to deduct interest on a mortgage belonging to a home that you do not legally own.

Even if your mortgage was paid off at the time you transferred the title to your home, there is still another tax trap waiting for you. The IRS code allows an individual to disregard the first $250,000 of capital gains on the sale of a private residence or $500,000 of capital gains for a married couple on the sale of their personal residence, so long as the title to the home has been held in their name. They have lived in the home for 2 out of the past 5 years. This valuable tax deduction is lost when the title to the home is held in the name of an entity.

​The only way these very real obstacles can be overcome is through the use of special types of trusts called "Asset Protection Trusts". In this document, we will discuss the two most commonly used asset protection trusts, examining each of their weaknesses. Finally, we will discuss a substantially better asset protection solution using a proven strategy based on over 200 years of actual legal precedence.

The most heavily marketed trust for asset protection is called a "Self-Settled Spendthrift Trust", which is either an offshore trust created in a jurisdiction outside of the United States, such as in the Cook Islands, or it is a "Domestic Asset Protection Trust" also known as a DAPT, which is only allowed in a few US states. Then there are variations where the trust is initially a DAPT, but when the client is under duress, the trust is shifted to the control of an offshore jurisdiction.

Now, despite their popularity, Self-Settled Spendthrift Trusts have a major weakness: they are, in fact, self-settled. That means that a Settlor (a person with a valuable asset, such as a rental home) establishes an irrevocable trust and places that valuable asset into the trust. Then that same Settlor names himself as the beneficiary of his own trust. Once the valuable asset held in trust (the rental home) begins to produce income, that income must be paid to the beneficiary of the trust, which in this case is the original owner (the Settlor), acting in their capacity as the beneficiary.

The concept sounds great! With the trust owning all the assets, they are protected from your creditors; yet, you are entitled to receive all trust distributions since you are the beneficiary of the trust. Remember the old saying, "If it sounds too good to be true, it probably is"? Well, that saying definitely comes into play here. The reason is that generations of US legal precedence and public policy have shown that creditors can reach the assets of self-settled trusts. (See page 4 for a list of cases showing that creditors can reach the assets of Domestic self-settled trusts)
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Why not set up an offshore trust? After all, the Cook Islands and other offshore jurisdictions do not recognize US laws or judgments, right? Not so fast. There are dozens of court cases that demonstrate how US courts have successfully pursued and seized the assets of self-settled offshore trusts, regardless of whether those assets were located in the US or physically offshore. You need to pay attention to these court rulings because they demonstrate how courts actually address self-settled offshore trusts, despite the opinions of their promoters. (See page 4 for a list of cases showing that creditors can reach the assets of offshore self-settled trusts).

So what about Domestic Asset Protection Trusts? Well, very few States allow DAPTs, and they already have a dismal record when they have been challenged. To date, the only published court cases involving DAPTs have failed because they were self-settled. So, despite the opinions of those who promote self-settled spendthrift trusts, whether they are offshore or domestic, courts and other legal precedents have consistently shown that they don't hold up as well as they have been promoted. (See page 4 for a list of cases showing that creditors can reach the assets of Domestic self-settled trusts)

So, how can you improve your asset protection for your home? After extensive research, we have learned that a non-self-settled trust, also known as a "Third Party Trust," has been consistently upheld by the courts for generations without exception.

A Third Party Trust is an irrevocable trust established for the benefit of someone other than the settlor, such as the Settlor's spouse. Because it is not self-settled, a creditor can't pierce it so long as there is no fraudulent transfer made into the trust, and this applies to any trust; we don't assist in making fraudulent transfers. We have also learned that a "Special Power of Appointment" is a tool that provides infinite flexibility without subjecting the trust to creditors. Court cases and Statutes going back over 200 years have consistently held that a special power of appointment is not subject to creditors. Without exception! This type of trust is sometimes called a 541 Trust because it is referenced in Section 541 of the US Bankruptcy Code, as well as in multiple other Statutes and court cases dating back to generations.

The Third Party or 541 Trust is superior to Offshore Trusts, DAPTs, and other options because it operates in all 50 States and in Bankruptcy courts, and has done so for over 200 years. It works for any asset in any location; it has been proven in court cases for generations, and there are numerous court cases and other examples where the Third Party Trust or 541 Trust has been upheld. It's simple to understand, implement, and operate, unlike the extremely complex structures associated with offshore trusts. It is infinitely flexible and can be modified at any time, and it is a fraction of the cost of an Offshore Trust structure. It also does not incur high annual maintenance charges or complex IRS reporting requirements.

Some people have criticized the Third Party or 541 Trust, but the legal precedence and continued court support remain. It doesn't matter what we say or what others may say; the only thing that matters is what the courts say. The courts have consistently ruled in favor of the Third Party or 541 Trust. (See page 6 for a list of cases showing that a special Power of Appointment will not subject the trust to creditors)

To learn more about the Third Party or 541 Trust and better asset protection for your home,

Schedule your FREE call by following the link below:

www.businessstructuringsecrets.com
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