I encourage the majority of people I communicate with to implement a asset protection plan... but I also advise them not to overdo asset protection. What I mean by this is that you must make sure that after your plan is complete that you still have plenty of assets in an unprotected environment to pay your reasonably anticipated bills.
I also advise that asset protection is not for personal residences. Normally, you leave personal residences outside of the protected environment. Many clients ask about reducing or eliminating insurance once proper asset protection is implemented. This is almost always bad idea because insurance is:
- Treated as unprotected cash available for creditors (thus insulating against a claim that a plan was settled with a fraudulent conveyance).
Insurance policies normally provide a good defense. Remember, asset protection can keep your money safe; it cannot keep you from being sued and perhaps being eaten up by the costs of defense. Also, a plan is for long-term savings and should never be settled with assets necessary for day-to- day (or even month-to-month) expenses.
Today, I take on a simple rule. It's a little bit funny but it really matters. What is it? Pigs get eaten. I put it here, it's a little shorthand phrase I use but it helps people remember it. It stands for the following, the following precepts. Asset protection is for a portion of your net worth. It is designed to put enough money aside so that if your world falls apart, if you really get in trouble, you'll be able to emerge on the other side of this dark tunnel with enough assets protected that you can start over again. It really is best designed to give you a fresh start if things go to pieces. And honestly, asset protection tends to backfire when you get overly aggressive. I don’t believe asset protection is for the $3,000 of jewelry. The two old cars you have and the new $20,000 car, you know, you're planning on buying.
I don’t believe things at that level really should be protected. Even with homes, unless there's a substantial portion, a substantial amount of equity with a home, it's often best to simply put a line of credit against it and homestead it. Keep it simple. Remember, asset protection is there to give you a fresh start. It's there to give you a fund that your creditor simply can't take. Don’t get overly aggressive because remember you're judged when you fund an asset protection plan. You're judged to make sure that you left sufficient unprotected assets to more than meet your reasonably anticipated debts. That’s one of the things you do to prove that you didn’t engage in a fraudulent conveyance. It helps protect your overall planning. So, don’t get, don’t get piggy. Be careful. Be circumspect and follow the 90-10 rule.
You should spend 90% of your energy or 90% of the energy you spend making money, spend the other 10% protecting it. Don’t go 100-0. Those are the people that lose everything. Ninety-ten is a good, a good ratio. Fifty-fifty isn't. I asked clients who are compulsed on asset protection. They're just as big a loser as the ones who don’t do it. So, remember pigs get eaten. Asset protection should not change your life. It should not render you insolvent. You should have plenty of money to meet your reasonably anticipated debts then your plan is very likely to stand any type of challenge and we'll be talking about fraudulent conveyances and the details of funding later. We already have three videos on those topics and they'll be very helpful but for now just remember pigs get eaten and don’t overdo it.