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Successful People Think about Litigation BEFORE It Happens. Are you prepared?

LLC Asset Protection





All Rights Reserved.  No part of this publication may be reproduced or transmitted in any form by any means (electronic, mechanical, photocopying or recording) or by any form of data storage and retrieval system without the prior written permission from the copyright owner.


Disclaimer:  The author and the publisher are not engaged in rendering accounting, tax or legal advice.  Always consult a tax attorney and CPA prior to implementing any suggestions written in this manual.  This material is not a substitute for legal or tax advice. Understand that your legal or accounting counselor may have little or no experience with the intricacies of asset protection.

Asset Protection through LLC’s is not taught in accounting or law universities.


We do NOT provide tax advice, tax opinions, tax strategies or tax shelters.  Contact a licensed tax attorney and CPA in the state in which you reside if you need these products and services.  Think twice if you're told not to consult with the IRS.



This asset protection book discusses the following issues:


  1. Protect income and assets beyond the limitations of liability insurance.

  2. Increase awareness of the risks inherent in keeping assets exposed.

  3. Increase asset control and financial privacy.

  4. Increase awareness of certain business transactions that increase client privacy in financial counter-intelligence.





Successful People Think about Litigation BEFORE It Happens. Are you prepared?


Asset protection is a process of protecting estate assets

against attack by creditors and lawsuit judgments.


A Limited Liability Company is a legal form

of business company offering limited liability to its owners.


The Limited Liability Company (LLC)  benefits in asset protection:

1 Reduce the incentive of getting sued in the first place

2 If you are sued, make sure your personal and business assets are protected

3 Extinguish the claimants’ economic incentive to sue

4 Utilize the LLC to provide a level of asset anonymity guaranteed and protected by state law

5 Make yourself disappear from information databases and unable to be located

6 Insulate your assets from each other so they are not lost in lawsuits

7 Increase bargaining power with creditors

8 Make collection on judgments difficult

9 Minimize the financial, emotional, and time consuming risks of lawsuits





The Limited Liability Company (LLC) has become a powerful tool for accomplishing asset protection goals. The LLC is the most flexible and convenient way for operating a business,

isolating dangerous assets, owning  high lawsuit risk investments (rental property, restaurant, medical practice) , while achieving financial privacy. 




Chapter 1

The Legal System can make you a target for lawsuits


We live in the most litigious country in the world.

A new lawsuit is filed every 30 seconds.

You have a one in four chance of getting sued next year.

If you are successful and perceived as wealthy, you are a desirable target for a lawsuit.

You are three times more likely to have a legal situation than

to spend a night in a hospital. Most people reading this have health insurance to protect themselves against a medical crisis yet few have structured themselves to protect against an attack on their assets:

homes, vehicles, yachts, planes, real estate, insurance policies, businesses and other investments. Without Asset Protection, you have effectively painted a big red bull’s eye on yourself and your business and made yourself a target for multiple lawsuits. If you generate high income (doctors, lawyers, CPA’s, business owners) or have significant assets (real estate, businesses, investments) and have not structured yourself properly through asset protection, you have a higher probability for attracting law suits.


Litigators accept cases contingent on the probability of winning the case, obtaining a settlement amount and upon the defendant’s ability to pay.  Attorneys assess the defendant’s ability to pay after conducting an asset search using easy to find information, such as the defendant’s name , approximate age (45-60 years old), and geographical location (50 mile radius of Miami).  Even when no assets are found, a professional may be automatically targeted due to their capacity to earn income.


The reality of our legal system is that defendants are named in lawsuits not because of fault, but their ability to pay - Can lawyers collect settlements from your assets?


If your assets are visible and unprotected, you will attract lawsuits.

If your assets are invisible and protected, you will repel lawsuits and attorneys. Attorneys will move on to the next easier target.


Defending yourself against litigation is expensive, time consuming and a hassle.

Loosing a legal battle can cost you, and your family, your entire estate.


How anyone can find out what you own  - ACTION ITEM


Attorneys and Private Investigators subscribe to online services that list real estate, vehicles, planes, and watercraft in your name and it takes about 15 minutes to run a report on the internet.  Other online sources will reveal bank and brokerage accounts. After running a simple report, an attorney will decide whether or not to go after you (or your relatives) or not. The merits of a case are a secondary factor compared to the ability to get paid. The attorney may take the case on his own nickel (contingency) if he locates a target with DEEP POCKETS.


This way you can see what attorneys see about yourself when they are sizing you up for a lawsuit.


Chapter 2


1.   Control assets without owning them in your own name.

An effective asset protection plan enables a person to control assets without linking them to identifiers, such as a name or social security number, that gives away the location and ownership of the assets.   Assets can be owned by corporations and LLC’s and controlled and used by you.


2.    Make the assets unattractive to the hostile litigator. 

You can make financial holdings, real estate, and other assets unattractive to the litigator by making them liable for federal income taxes on income not yet received.  Making any judgments uncollectible also makes them a tax liability to the litigator. “Charging Order” protection can be combined with financial privacy for effective asset protection.

Details in chapter 3


3.   Decrease Litigation Impact by creating Multiple Entities

The best strategy for reducing litigation exposure is separating assets into multiple LLC’s to protect each one from each other in litigation.


-         A doctor owns 5 clinics and a testing lab and places them in separate LLC’s. A patient sues one of the facilities, the other facilities will not be brought into the litigation because they are separate entities. If the doctor owned them as a sole propitiator or in a single corporation or LLC, the doctor may risk the loss of all 6 facilities.

-         A business owner has an oriental food market, two sit down Chinese restaurants that also deliver, and a catering business for banquets and weddings. Each of these four businesses are in separate LLC’s. The delivery person is rushing around town delivering Chinese food orders and commits vehicular homicide. Since the other businesses are owned by separate LLC’s, they are not liable entities. If the businesses had a common owner (individual, corporation, or LLC), their assets could be brought into the lawsuit.

-         A real estate investor owns 20 rental properties including single family homes, duplexes, and apartments and places them in separate LLC’s. A tenant injures themselves at one property but is only able to sue the LLC that owns the property since the other properties are separate legal entities. If the properties had a common owner (individual, corporation, or LLC), their assets could be brought into the lawsuit.


4.    Protection from Insurance Limitations

Every insurance policy has exceptions, limits, and exception clauses to minimize risk to the insurer and further expose you (the insured). LLC’s can limit your liabilities and protect your assets if structured properly.


-         Your insurance coverage is $10 million but the jury awards $48 million for

an accident that takes place at  your office or property. Without asset protection, you could loose everything.


5.    Four key minimum requirements for valid LLC’s


       - Have at least two members


       - Be taxed as a partnership


       - Be managed by a manager, NOT the members

         (Managers can be people or another business)


         - Have a profit motive (invest in real estate, CD’s, stocks, businesses)


        NOTE: There are many LLC’s paper mills in the industry that sell sham LLC’s.

        Make sure your LLC meets these minimum requirements for validity.



Chapter 3

What is a Limited Liability Company (LLC)

and how does it provide Asset Protection?


The Limited Liability Company (LLC) has become a powerful tool for accomplishing asset protection goals. The LLC is the most flexible and convenient way for operating a business,

isolating dangerous assets, owning  high lawsuit risk investments (rental property, restaurant, medical practice) , while achieving  financial privacy. 


LLC’s were created by state legislatures to create a legal entity to avoid the tax and business problems found in corporations and partnerships. The LLC provides the liability protection of a corporation without all the customary paperwork and reporting. The corporate principle officers and shareholders are routinely sued whereas the shareholders of LLC’s are protected from lawsuits.


Wyoming (1977) was the first state to pass a Limited Liability Act and introduced the Limited Liability Company (LLC) to business. Once the IRS determined that the LLC had partnership (or pass-through) tax status, the remaining states created their own LLC laws.


LLC Taxation:


Single Member LLC’s


LLC’s with only one member are disregarded for tax purposes and the income and expenses are reported on the individuals Form 1040. The single member is treated as a sole proprietor. If a corporation is a the single member, the LLC income and expenses are reported on the corporations’ returns with Form 1120 or Form 1120S.


Multi-Member LLC’s


Multi – Member LLC’s are taxed “pass-through”

as a partnership and file Partnership Tax Return Form 1065. Income and expenses pass through the partnership directly to the partners. Each partner takes their share of income and expenses determining each individual partner’s individual tax liability.


Partnerships have partners                      LLC’s have members                

                                                       Ownership in the LLC is the “member interest.”



LLC Limited Personal Liability:


When hostel creditors sue a corporation, typically they can only take the assets of the corporation. Generally, stockholders are not liable (have “limited liability”) for the debts, liabilities and acts of the corporation.

Notice that in a partnership, all partners are jointly and severally liable for everything chargeable to the partnership.

If a supplier or creditor comes after the LLC, they may not go after the member’s house, car, or bank account, which limits the personal liability of the member.


Corporations                                Partnerships                        LLC’s


Corporations have stockholders     Partnerships have partners     LLC’s have members

Stockholders have limited liability   Partners have joint liability      Members have limited liability

                                                    Taxed as a Partnership          Taxed as a Partnership



The LLC members have the limited liability of a corporation.

The LLC members are taxed as a partnership.





LLC’s have the pass-through taxation of a partnership


the limited liability of a corporation.



Corporations                                                    LLC’s


Have one or more                                              Have one or more

Directors or Officers                                          Managers



Hostel creditors can take                                   Hostel creditors can take

stock if proven you own it                                  member’s economic interest

                                                          through the courts by

                                                                        obtaining a charging order



When a judgement is awarded against an LLC, it may be levied, and the LLC’s property seized or sold for payment.

When a judgement is awarded against a member of a LLC. to the extent that the operating agreement so states, distribution usually can not be compelled to satisfy a member’s judgement debt. Creditors have to satisfy themselves with a “charging order”. This gives them the rights to any distributions made by the LLC to that particular member, but little else. Once the charging order is obtained, the hostile creditor is now first in line for any future distributions that are usually paid out to the member(s).


Wyoming Statute 17-15-145. Rights of creditor.


“…the charging order is the exclusive remedy by which a judgement creditor of the member or transferee may satisfy a judgment against the member’s interest in a limited liability company.”


LCC’s Complement , Supplement, and Complete Insurance Protection


LLC’s can act as a form of supplementary insurance. The “limited liability” may protect what the insurance does not.


Insurance may not pay:

-         a claim based upon the commission of an intentional act or one resulting in punitive damages. The intentional act may even be committed by someone other than yourself like an employee or family member.

-         the amount of the claim may grossly exceed the policy limits.



Making  LLC Assets  Unattractive To The Creditor


The LLC Manager can refuse to distribute the earnings (if provided for in the operating agreement).  When a creditor enters a charging order against a member’s earnings, the creditor is immediately responsible for taxes on the income distribution, whether the creditor receives the distribution or not. If no income distribution is made to the creditor, the creditor is still responsible for taxes on the “phantom income”. Since being taxed on income not received is a negative, this produces a better negation position for the member for  settlement.


Requirements for valid LLC’s

       - Have at least two members

       - Be taxed as a partnership

       - Be managed by a manager, NOT the members

         (Managers can be people or another entity - partnership , LLC, corporation)

       - Have a profit motive (invest in real estate, CD’s, stocks, businesses)



Manager of LLC


oversees the



which has 2 or more Members

Member #1 – 50% Interest                                                         Member #2 – 50% Interest         You                                                                                          Other entities


Other entities could be family members, individuals, partnerships, LLC’s, corporations.

Two or more members own interest in the Manager Managed LLC and their total interest adds up to 100%.                      

LLC Earnings and Deductions Distributions in light of Charging Orders

Manager of LLC


distributes the earnings and deductions to LLC Members according to their respective interest




which has 2 or more Members

Member #1 – 50% Interest                                                         Member #2 – 50% Interest         You                                                                                          Other entities

Charging Orders frustrate Hostile Creditors

A creditor of a Member in an LLC is supposed to be limited to getting a charging order against the distributions of the member. As a result, the creditor cannot acquire the LLC interest of the debtor and therefore cannot acquire the assets of the LLC. As a result, the creditor traditionally has to wait until the manager  makes a distribution in order to get paid. Of course, in most cases the manager  has authority to delay distributions. In the meanwhile, the creditor has to pay the tax which would normally fall on the debtor (on income yet to be received).

If a lawsuit against you is won and the hostile creditor obtains a charging order against your distributions, the LLC Manager may restrict distributions according to the operating agreement.

Since the LLC’s Manager may not make the distribution of the member’s interest, all the hostile creditor has earned in the charging order process is a tax liability on “phantom income” (income never received).  This will dampen the hostile creditor’s motivation to pursue a charging order and they may either drop the case or settle for pennies on the dollar.

LLC’s afford a significant degree of protection for the members against the internal liabilities of the LLC, yet they also severely restrict the collection rights of the creditors of a member.

THE LLC Manager

     You (or your family members) control the LLC that owns the assets.  The key is to obtain a person to head the LLC as the manager.  Because you’re seeking privacy from the public record, this means that you (or your family members) should not serve as the manager.  This role should be reserved for a person other than yourself or your spouse.

Friends as Managers

     Friendship and money do not mix.  Most people have learned this lesson the hard way.

Hiring a Professional Manager for your LLC

     The professional manager works to protect the interests of the members and the LLC  itself.  This enables you to stay off state records and off the records of database resellers.  We provide this service after forming the LLC.

What should the Manager do?

·         The manager signs the articles of organization in the filing of the LLC.

·         The manager signs liens, under your direction, against property and other assets.

·         The manager is available by phone, fax, and email to answer questions and correspond.

·         The manager DOES NOT own or control the company.

·         The manager is hired to perform a service

LLC Asset Protection Maxims:

Taxed as Partnership

At Least 2 Members (or more)

Manager Managed (not member managed)

Established for profit (not merely to hide or protect assets)

Registered in every state where business is conducted




Chapter 4


When is the best time to implement an Asset Protection Plan?


Before financial or legal problems are encountered.


Asset transfers can be challenged and reversed under the fraudulent conveyance laws if it can be shown that the transfer was done to unfairly frustrate a legitimate creditor.


     An effective asset transfer must be completed well in advance of an economic or litigious threat.  For example, gifting assets to family members shortly after receiving notice of litigation may result in the undoing of the asset transfer.  The hostile creditor could argue that the debtor intended to unfairly frustrate the creditor because of the timing of the asset transfer.  Therefore, the timing of the asset transfer is critical to protecting assets from hostile creditors.  To prevent such a risk, transfer assets into the asset protection structure prior to possible claims from hostile creditors.


     The asset transfer must also have the following additional attributes:

a.       Solvency hasn’t changed after the asset transfer.

b.       The litigation was not foreseeable.

c.        The debtor did not abscond after the asset transfer.

d.       The assets were not transferred to a family member or friend.

e.       Assets were transferred for at least 70% of market value.


Procrastination is THE MAJOR SABATOUR

     Procrastination is a major threat to any asset protection plan.  Time works to the advantage of the asset owner when an asset protection plan is implemented well in advance of financial or legal difficulties.  It demonstrates a lack of intent to frustrate creditors or commit fraud. 

     Procrastination and haste are two key threats to any attempt to protect assets from abusive and hostile creditors.  Haste typically accompanies procrastination because the property owner usually makes serious mistakes in the rush to protect assets, especially when feeling the immediate heat of litigation.





Chapter 5


The DO’s and DON’Ts to Remember




Don't relinquish control of assets to someone else.  Although it's effective asset protection, it can lead to complete loss due to dishonesty and other issues.  Temptation is a problem.


Don't wait.  The early bird protects the worm. Stop waiting until the last minute:  It's never too late to start.


Don't avoid taxes to pay for the program.


Don't just depend on secrecy.


Don't underestimate the creditor.


Don’t get involved with LLC’s to commit fraud, commit illegal acts, hide from the IRS or hide from bankruptcy courts. You will be caught. You will loose everything. You will go to jail.


Don't overlook exposures assuming nothing will happen.


Don’t think that your financial planner, CPA or attorney understand Asset Protection with LLC’s. They were never trained on this in college and they are not in the Asset Protection with LLC business. The vast majority of LLC’s that are created are not formed by attorneys or CPA’s.

Most LLC’s are created by individuals and Asset Protection professionals.


Don’t lull yourself into sleep thinking your assets are protected because you have insurance, a will, a living trust:

- Insurance has limitations

- A living trust protects nothing

- A will protects nothing





Do remember that smart wealthy people keep and protect their money and assets. Foolish wealthy people loose their money. You do not have to do something wrong to be the target of a lawsuit, you just have to be wealthy. A 2003 article in the Wall Street Journal claimed that 60% of America's millionaires have considered engaging in asset protection planning. Today, most of America’s wealthy have involved with asset protection strategies.


Do remember to own nothing but control and enjoy the benefits of everything.


Do remember that protecting wealth is just as important as building wealth.


Do it now. Stop waiting until the last minute:  It's never too late to start.


Do remember that LLC’s are used by intelligent wealthy individuals. They funded millions of dollars for the legislation in each state to pass the LLC laws. Why not take advantage of the laws that the mega rich paid for?


Do remember that Asset Protection with LLC’s is a cornerstone of any smart estate plan, business plan, financial plan, pubic identity protection & secrecy plan, divorce protection and law suit avoidance plan.


Do remember that certain professions are often targets of lawsuits:

-         physicians, business owners, architects, engineers, politicians, lawyers, CPAs, property developers


Do remember that certain businesses are often targets of lawsuits:

-         restaurants, beauty salons, construction, medical clinics, information technology (software, web systems) , property investments, food produced on your farm


Do remember that certain assets are often targets of lawsuits:

-         rental property, aircraft, water craft, vehicles, jet skis, inventions, products that you sell or  

or own or manufacture, vacation property



Do remember that making friends and relatives the manager of your LLC destroys your secrecy. Attorneys are easily able to check on your friends and relative to track down you assets. Hiring an outside individual as Contracting Officer and Registered Agent will enhance your secrecy. Hiring friends and family with destroy your secrecy. You maintain control and use of assets while using a nominee officer.


Do remember single member LLC’s that are owner managed often offer little liability and/or asset protection in lawsuits. You want a manager managed LLC owned by two or more members.


Do remember that LLC’s are very affordable compared with loosing the asset or assets. If you pay $2,000  a year in homeowner’s insurance to insure a $350,000 home, it just makes good sense to invest less than that to protect the home with a LLC. The LLC can protect the home from lawsuits in ways that insurance never can.


Do remember that insurance and Asset Protection LLC’s each  have benefits and drawbacks that are mutually exclusive but complementary to each other.




Chapter 6

What is the best information source for Asset Protection LLC’s ?


When looking to protect assets, most people turn to their family attorney or CPA for advice. What most people don't know is that their trusted attorney or financial advisor has likely never had any training or experience whatsoever in the field of asset protection.

Asset protection isn't taught in law school. Although law schools offer classes on corporations, trusts, estates and wills, there is no specific curriculum for asset protection. (See for yourself: Harvard Law School :  Asset protection, after all, is designed to put lawyers out of business and prevent lawsuits. So when looking to implement an asset protection plan the obvious question is, "Who then is qualified to offer advice in the asset protection arena?"

The answer to this question is someone who:

1) has extensive experience in the asset protection arena

2) has an impeccable record of asset protection success in and out of the courtroom

3) has incorporated in the operating agreement the  key  requirements specified by the IRS

  - have a manager

  - taxation as a partnership

  - have two or more members

  - have profit as a motive for LLC

Many ineffective LLC’s are marketed on the internet today that have zero, one or only two of the IRS requirements. Clients with ineffective LLC’s walk around with a false sense of security and are greatly disappointed when their LLC crumbles when challenged.

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