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Step Three: Examine Risk of Loss from Creditors
STEP THREE:
EXAMINE RISK OF LOSS FROM CREDITORS
There is nothing wrong with protecting your estate from creditors, as long as your follow the law. Realize that you cannot hide your assets. In fact, the law in most states is that you cannot hinder, delay or impede your creditors from their attempts to collect on a valid and enforceable claim against you. However, all of those laws assume you are attempting to hinder, delay or impede these creditors AFTER the liability arises. There is nothing that says you cannot do so BEFORE you are subject to liability. If you are the cause of a serious traffic accident today, causing potentially millions of dollars of damage to another and tomorrow you retitle all of your real estate, transfer all of your money and give away all of your business interests, most people would find that offensive. It is quite clear you are only transferring the assets to protect them from your creditors, regardless of any other motive you would claim. On the other hand, if you have no such catastrophic liability or potential liability when you retitle real estate, transfer money and gift business interests to family members then later have an accident, you would not be moving assets around, trying to secrete them from creditors. They would already be outside the reach of creditors!
Asset protection involves a great deal of responsibility and risk. Asset protection entities require a lot of maintenance and usually involve additional accounting and tax reporting. However, such additional time and expense is simply part of the cost of the protection afforded. Before you determine if you need asset protection, analyze your property in connection with current exemption laws. Most of us have all the asset protection we need with the Oklahoma exemption laws. Those laws are some of the broadest and most protective in the country and provide that the following assets are exempt:
- Your home, subject to the following limitations:
In a city, town or village: Up to one acre of land, selected by the owner.
Outside a city, town or village: Not more than 160 acres in one or more parcels, selected by the owner.
NOTE: At least 75% of the total square foot area of the improvements for which a homestead exemption is claimed must be used as the principal residence in order to qualify for the exemption. If more than 25% of the total square foot area of the improvements for which a homestead exemption is claimed is used for business purposes, the homestead exemption amount shall not exceed $5,000.
- A manufactured home.
- All household and kitchen furniture held primarily for personal, family or household use (NOTE: A household computer may be considered an item of household goods, under certain circumstances).
- Any lot or lots in a cemetery.
- Implements of husbandry necessary to farm the homestead.
- Tools, apparatus and books used in any trade or profession for the personal, family or household use of such person or a dependent of such person.
- The person's interest, not to exceed $4,000.00, in wearing apparel that is held primarily for personal, family or household use of such person or a dependent of such person.
- All books, portraits and pictures that are held primarily for the personal, family or household use of such person or a dependent of such person.
- All professionally prescribed health aids for such person or a dependent of such person.
- Five milk cows and their calves under six months old that are held primarily for personal, family or household use of such person or a dependent of such person.
- 100 chickens held primarily for personal, family or household use of such person or a dependent of such person.
- Two horses and two bridles and two saddles held primarily for personal, family or household use of such person or a dependent of such person.
- Such person's interest, not to exceed $3,000.00 in one motor vehicle.
- One gun held primarily for personal, family or household use of such person or a dependent of such person.
- Ten hogs held primarily for personal, family or household use of such person or a dependent of such person.
- Twenty head of sheep held primarily for personal, family or household use of such person or a dependent of such person.
- All provisions and forage on hand, or growing for home consumption, and for the use of exempt stock for one (1) year.
- 75% of all current wages or earnings for personal or professional services earned during the last 90 days.
- Such person's right to receive alimony, support, separate maintenance or child support payments to the extent reasonably necessary for the support of such person and any dependent of such person;
- Any interest in a retirement plan or arrangement qualified for tax exemption purposes under present or future Acts of Congress.
- Such person's interest in a claim for personal bodily injury, death or worker's compensation claim, for a net amount not in excess of $50,000.00.
- All right, title and interest, including cash value, in and to any life insurance or annuity policy.
Essentially, those items necessary for living are exempt. However, the following items are NOT exempt (unless they are part of a qualified retirement plan):
- Parcels of real property other than your personal residence.
- Stocks.
- Bonds.
- Savings accounts.
- Boats.
- Collectibles.
- Mutual funds.
- Vehicles in excess of $3,000.00.
- Patents and trademarks.
- General partnership interests.
There are numerous other items not subject to exemption and for the most part, you will not have an exemption in a particular item unless the exemption is specifically provided for by law. Also, in the event of a judgment or claim against you, you must assert your exemption in order to protect the property attempted to be taken. Therefore, knowing your exemptions is important. If you own only exempt assets, you still may want to consider asset protection for another reason: CONTROL OF ASSETS.
In the next section, you will learn about the documents that make asset protection work. Through proper formation and funding of these documents, you can legally protect assets from creditors, reduce or eliminate estate taxes, and retain full control of your assets.
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