The Sliding Scale of Asset Protection
The most common misconception among Doctors regarding asset protection is the idea that an asset is either “protected” or “unprotected.” This “black or white” analysis is no more accurate in the field of asset protection than it is in the field of medicine. In fact, asset protection advisors are very similar to physicians in how they approach any client or patient. In this chapter, we will discuss the way in which advisors measure a client’s assets by using a sliding scale. Then we will suggest ways in which Doctors can protect assets, avoid high-risk assets and achieve a high level of protection.
The Sliding Scale And Scores
To measure the assets of a client, advisors use a sliding scale that indicates the client’s “good” and “bad” financial habits. Like Doctors, asset protection professionals will first try to get a client to avoid “bad habits.” For a medical patient, bad habits might mean smoking, drinking too much or maintaining a poor diet. For a client of ours, bad habits might include owning property in their own name, owning property jointly with a spouse or failing to maximize the percentage of exempt assets in an investment portfolio.
Like a Doctor who judges the severity of a patient’s illness, asset protection specialists use a rating system to determine the protection or vulnerability of a client’s particular asset. The sliding scale runs from-5 (totally vulnerable) to +5 (superior protection). As you have probably already guessed, our goal is to bring a client’s score closer to (+5) for each of their assets.
When most clients initially come to see us, their asset planning scores are overwhelmingly on the negative side of the scale. The reason for this score varies. Typically, personal assets are owned jointly (-3) or in their individual name (-5). Both of these ownership forms provide little protection from lawsuits and may also have negative tax and estate planning implications. More
Maximizing Exempt Assets
In the following chapters, we will explain a number of legal entities and techniques we use to protect the assets of our Doctor clients. This chapter on maximizing exempt assets precedes the following chapters because, in our view, clients should always reasonably maximize their use of exempt assets before moving on to legal tools, legal entities, and other techniques.
Despite their superiority to other asset protection strategies, exempt assets are not adequately used by most Doctors. This chapter will explain why many advisors don’t recommend exempt assets as often as they should. Then we will discuss all of the exempt assets that can be valuable components of a comprehensive financial plan. Throughout the book, you will revisit many of these exempt assets as they provide additional benefits to asset protection. In a later Lesson, you will learn how sophisticated Doctors save time and money by leveraging exempt assets that offer additional benefits. For now, let’s begin discussing why exempt assets are considered the “best” asset protection tool and then discuss the reasons why they remain underutilized in asset protection planning.
Exempt Assets: The “Best” Asset Protection Tools
We consider exempt assets to be the “best” asset protection tool for the following reasons: 1. No legal/accounting fees
Most of the tools in subsequent chapters involve the creation of legal entities that require set up and ongoing legal fees, state fees, accounting fees, and even additional taxes. Using the exempt assets described in this chapter involve none of these significant costs and affords better protection as well. 2. No loss of ownership or control
The legal tools of the following chapters typically require giving up some level of ownership or control to family members or even third-party trustees. By using exempt assets, you can own and access the asset at any time while enjoying the highest (+5) level of protection.
3. Superior Protection
The legal tools explained later offer protection that ranges from (+1) to (+5). Exempt
assets always enjoy the top (+5) protection up to their exempt amount.