Did you know the lawsuit industry is $233 billion dollars strong in the USA? The number of lawsuits is rising too.
When economic times get tough, some people see a civil suit as an easy way to get rich. And lawsuits always targets those who have money. Not just big corporations, either.
Small businesses, successful entrepreneurs and wealthy individuals all fall into the crosshairs of litigation lawyers.
As every law student learns at some point: “commercial success spawns litigation.”
Which is why thousands (who have followed our strategies and found extreme financial success) now face a new reality:
Everyone wants their money.
Fortunately we’ve got some great solutions for you (and one solution offers a way to turbo-charge your investment profits).
So whether you are just beginning your journey to personal financial freedom …
or whether you’ve already secured the fortune of your dreams…
A legitimate question to ask is…
How Do You Safeguard Your Hard-Earned Wealth?
In fact, we had a reader ask that very question:
How safe are trust funds? So far the only multimillionaire I have met said most of his millions are in trust funds to protect him against possible law suits. So, how safe are they? As far as I know, this particular multimillionaire has not made actual investments; he just wanted to protect his money (the trust funds were made to his 2 sons’ names).
-Raymond
It’s a good question, but we can’t tell you whether a trust fund is “safe” or not.
That’s because a trust fund in and of itself is not a financial instrument. It’s a legal structure into which you place money or assets.
A trust is kind of like storage rental unit. When you first rent the storage unit there’s nothing in it. By itself, it is neither “safe” nor “risky.”
Afterwards, though, you start putting things into the storage unit, like your coin collection, or your patio furniture or your scuba gear, etc.
Once you’ve put your stuff in the storage unit, it could lose value. But its not because of the storage unit itself that your stuff inside gains or loses value. It’s just a place to store it.
Of course, if you have extremely valuable contents inside your unit, you’ll want to make sure it’s a soundly built structure and has top-notch security.
That’s kind of how a trust works. You first set up a legal structure. Then you put money or assets into to the trust.
So if you put 1000 shares of stock into a trust and the stock market tanks, the structure of the trust isn’t going to prevent that stock from losing value.
But our reader seemed to be more interested in whether a trust could keep funds “safe” from a potential lawsuit.
So let’s reframe the question like this:
Can a Trust Fund Protect Your Assets from Possible Lawsuits?
This is a better question … and the answer is more complicated than a simple “yes” or “no.”
Here’s why:
It comes down to how the trust is set up … basically whether the trust is revocable or irrevocable.
Whoa. Those are big lawyer-speak words, so let’s simplify it.
Revocable=you can change the terms of the trust (or dissolve it) whenever you like. It is completely flexible.
Irrevocable=you cannot change the terms or dissolve it (at least not until the terms or purposes of the trust have been completed).
Most trust funds that people set up are called “Revocable Living Trusts.”
As already mentioned, the “Revocable” part means that the terms of the trust can be changed. The “Living” part means that the trust is in effect while the trust creator is still alive.
A Revocable Living Trust has many nice features. It’s relatively easy to set up, and it is becoming a popular replacement for a will in the United States.
We’ll be featuring those benefits at a later date.
There is one little problem…
A “Revocable Living Trust” Offers No Asset Protection
The courts are very clear about what money is protected in a lawsuit and what isn’t.
Revocable trusts have no protection whatsoever.
If you are sued, any money you have in a revocable trust is vulnerable.
So if you are looking for asset protection (or any potential tax sheltering), a revocable trust won’t cut it.
For protection against lawsuits, you need an irrevocable trust.
But the protection you get with an irrevocable trust comes with significant trade-offs.
And you must follow some stringent rules.
The Two Iron-Clad Rules of an Irrevocable Trust
The first rule is this: if you create an irrevocable trust, you cannot be the Trustee. You can’t even choose a close relative.
In other words, not only do you give up ownership of your assets to the trust, you also give up control of the money you put in.
And remember, “irrevocable” means you can’t change your mind. You can’t even change the trustee (except in special circumstances).
This is all for your protection. If you are sued, lawyers will try to attack the legality of your trust. Your only line of defense is to make sure the trust is set up as clearly irrevocable.
The second iron-clad rule is that you must set up the irrevocable trust before anyone sues you (or even before someone threatens to sue you).
If you try to set one up after a lawsuit is initiated, no (competent) lawyer will touch it.
That’s because lawyers can then be sued too under state “fraudulent conveyance laws.”
If you attempt to hide or move assets to avoid creditors, that’s a fraudulent conveyance. The courts will rule against the trust in a lawsuit.
Setting up an irrevocable trust for asset protection isn’t cheap.
Domestic asset-protection trusts cost around $3,000 to $10,000 in attorney’s fees, plus yearly asset management fees of roughly 1 percent.
That’s why asset-protection trusts may not make sense unless someone is willing to put a significant amount of money in them (some experts suggest at least $1 million).
Some people want the protection – but not the high cost, so they search around and find discount “trust mills”. These do-it-yourself online services promise to set you up for $295 or less.
But whatever you do, don’t try to set up an irrevocable trust on your own!
You’ll pay for it down the line in headaches and legal fees. And if you get sued, you’ll get taken to the cleaners (and likely get cleaned out)!
If all this seems like a lot of effort … it is.
If you have a lot of money to protect, it can be worth it (be sure to hire a good attorney).
But if you aren’t a multi-millionaire (yet), here’s some good news…
A Lower Cost Alternative to a Trust
Depending upon your needs, a your life insurance might serve as a viable replacement for an asset-protection trust.
The life insurance is what we like to call a Cash Flow Banking System. It’s a foundational strategy in a new Wealth Blueprint.
A life insurance and an irrevocable trust are not identical, but a life insurance is much easier to set up.
No lawyers are needed, it has a lower startup cost, and includes a host of additional benefits.
For example, a life insurance can provide:
- A guaranteed annual return (you’ll receive a set amount of interest each year)
- No risk of principal (which means the amount will never drop)
- Investment growth at a competitive annual rate of return (6-10% or more)
- The ability to take out your money whenever you want, without penalty
- Protection against creditors due to a lawsuit or bankruptcy (in most cases)
- Liquidity so you can have your money in your hands within a few days
- Access to your money in the event of a disability.
- The ability to buy your home, cars, and other large purchases from yourself, so you earn the interest instead of a bank.
- TAX FREE withdrawal of your money when you decide to retire
Basically, you protect your money from a lawsuit without giving up control of the money.
If you you’d like to protect you assets like an irrevocable trust without all the hassle, you need to check out this book. It’s only 100 pages and it’s worth it.