Using Debt As A Shield

By Michael Wayne Patton


The best way to think about asset protection is as a comprehensive strategy that protects you and your wealth from many angles. Trusts, family limited partnerships, LLCs, life insurance, and retirement plans are all tools that we use to fortify wealth and pass it on to loved ones with the smallest tax burden possible, but in many cases the way in which these tools are used is just as important as the tools themselves.

Not many people think of debt as a good thing, but in the world of asset protection, debt can be extremely useful as a tool and as a strategy, especially if you have any significant portion of your net worth tied up in real estate (or in some cases even stocks or bonds). Think about it like this: cash is easy to protect, because we can safely move it out of the U.S. and beyond the reach of U.S. creditors and courts. The same is true of other hard assets like precious metal, art, collectible cars, etc.

Real estate, on the other hand, is where it is. It can’t be moved and is therefore always subject to the jurisdiction of the court system where it is located. So even if real property is inside your asset protection plan (where it should be), a judge can simply decide to ignore the protections around it.

Equity Stripping

This is where debt comes in. Property that is encumbered by a mortgage at a high loan to value ratio is not very attractive to creditors. One way to protect the value of property is simply to carry a note on it, but that option doesn’t appeal to everyone. Luckily there’s an alternative.

So long as real property is inside of an asset protection plan at the time when a creditor’s cause of action or grievance arises, the equity in the real property can be “stripped” out and protected within the planning. This means that the property can be protected by debt after a lawsuit is filed against you, and the loan proceeds are likewise protected. It is a very sophisticated strategy that I’ve used to help people save real estate ranging from Hawaiian homes to commercial property.

If you’re interested to learn more about asset protection planning, please feel free to contact directly at (850) 803-1166. Just say that you were referred by the Florida Healthcare Law Firm, and I will waive my customary $279 consultation fee.