step 1 - your assets step 2 - levels of protection step 3 - timing

Levels of Protection

Levels of ProtectionFor each of your assets you can achieve different levels of protection. From simple and inexpensive, to the complex and comprehensive.

The various structures that are available to protect your assets can offer you varying degrees of protection. From some that are easy to set aside, to those that are legally or practically impossible to penetrate. How do you know which one you need?

You often don't know. It is difficult to determine in advance how aggressively or intelligently any given creditor will pursue your assets. You want to do the minimum necessary (so as not to pay more than you need to set up the structure), but enough to protect your assets. The following will help you determine what level of protection may be enough for you.

Structures that are on the more basic side are limited liability companies (LLCs) and limited partnerships (sometimes known as family limited partnerships, or FLPs). If you transfer your assets to an LLC or an FLP, you will no longer own the assets transferred. You will now own the interest in the entity that you transferred the assets to. Why is it better to own an interest in an LLC than, say, a bank account or an interest in real estate?

Most assets, including bank accounts, real estate, corporate stock, are easily reachable by creditors. But there are certain assets, like LLC and FLP interests, that are not easily reachable by creditors. You transfer your assets to an LLC, you now own an LLC, an asset not easily reachable by creditors.

If you set up the LLC or the FLP well in advance of a creditor action, they are likely to work 90-95% of the time. However, if you set them up at the last minute (i.e., you already know of a creditor who wants to sue you or get to your assets), their likelihood of working may drop to between 60 and 85%.

The costs of setting up an LLC or an FLP are relatively low, with most attorneys charging between $2,500 to $5,000.

More advanced structures may combine LLCs and FLPs with such concepts as irrevocable trusts, sales and leasebacks, transmutations agreements, entity conversions and other. These more advanced domestic asset protection structures may increase the level of protection you get by 5-10 percentage points. They will also increase the legal fees by between $3,000 to $8,000.

Most advanced structures utilize offshore asset protection structures, like foreign asset protection trusts and foreign LLCs. Even these structures have many permutations on how they can be set up and how much complexity and protection can be brought to bear. These structures will usually result in a level of protection of between 90 and 100%, even when established late in the game. Typical legal fees for these structures vary between $12,000 and $30,000.

Our rule of thumb when helping a client determine the right asset protection structure – hope for the best, plan for the worst. Set up a structure that is a bit more protective than you think you will need. You will end up spending a little bit more, for a much greater peace of mind.

If you are looking for a more detailed explanation of asset protection, with the full substantive legal foundation, visit
Klueger & Stein, LLP
16000 Ventura Boulevard
Suite 1000
Encino, California 91436

Phone: (818) 933-3838
Fax: (818) 933-3839
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