The New American Dream
In case you haven’t noticed, there is a New American Dream. This dream isn’t the one instilled in us by our parents and grandparents. It isn’t what Nathaniel Hawthorne was likely talking about when he wrote that “Families are always rising and falling in America,” even though this dream does enrich some at the expense of others. The New American Dream isn’t a reward for educated risk-takers who use ingenuity and elbow grease to carve success for themselves.
Nor is this New American Dream rooted on the Puritan ethic embodied in Captain John Smith’s “He who does not work, will not eat.” It isn’t based on ingenuity or “working smarter” either.
No, the New American Dream is an insidious epidemic. It’s a free ride for the people who achieve it, but the toll exacted from the people who pay for this dream–the families that are “falling in America”–is enormous. The new American Dream is to become wealthy by lawsuit. The idea is to take from those who have achieved and give to those who are “victims.”
Does that sound ridiculous? Well, it should sound ridiculous. I certainly think it’s ridiculous, but no matter what any of us think, no matter how strongly we subscribe to traditional notions of achieving success, we must out of necessity act to protect ourselves against lawsuits. To really understand the need for protection against this New American Dream–the need to protect your assets against lawsuits–you need to understand the mentality of people who file lawsuits and the strategies pursued by the attorneys they hire.
What Does It Take to Achieve The New American Dream?
Not much. You and I know that self-development takes hard work, discipline, and dedication. Sadly, the reason so many people pursue the New American Dream is that it’s easy. Doesn’t it seem that more and more people are just interested in getting by these days? Many people are happy just to survive while leaving all the hard work to someone else. These people aren’t interested in self-development or growth. They have a sense of entitlement or a belief that they are victims. There are a lot of these people, up to 47% of the U.S. population if you take Mitt Romney’s word for it (recently named Quote of the Year for 2012 by Yale University), though the issue isn’t political at all.
Within this group, there is a certain subset that follow the New American Dream by looking for lawsuit windfalls.
All one needs is a sense of entitlement or the idea that a wrong has occurred and a target to sue. We all know that you can’t turn on the television or drive five miles on practically any major road without having a personal injury attorney advertisement tell us precisely that: “YOU have been wronged, and YOU are entitled . . . .”
After that, the task is simple. Sit back, let the plaintiffs’ lawyers do their thing, and collect a judgment or settlement.
Asset Protection For The Informed
Like most things in life, there is more than one solution to this problem. One idea is to reform the legal system in various ways. For example, we could institute a “loser pays” rule and eliminate contingency fees (e.g. attorneys who take a percentage of winnings in lieu of fees). Of course, since legislative bodies can’t seem to agree on anything these days, the idea of reform does little to protect your wealth today, and the powerful trial lawyers lobby works hard to make sure that meaningful legal reform never occurs.
So what can you do?
I believe there are two basic systems of asset protection. There is one system for the uninformed which says “just carry insurance,” and there is a completely different system for informed people who have been taught about wealth preservation and asset protection by virtue of coming from multi-generational wealth.
The good news is that you don’t have to be ultra-wealthy in order to take advantage of the “informed system” of asset protection.
Does Insurance Offer Asset Protection?
Yes, insurance does offer a limited form of asset protection, but it has flaws and can actually work against you. Think of the following:
- Insurance can, in fact, encourage suits against you, because plaintiffs’ attorneys see an easy pot of money from which to collect. Asset protection, on the other hand, discourages lawsuits and creates incentives for plaintiffs to settle for pennies on the dollar, since even a victory in court doesn’t guarantee they’ll collect winnings.
- Insurance only covers you for specified occurrences. It doesn’t cover you outside of carefully defined circumstances, so the moment you’re sued, the insurance company may stop “batting for you” and start look for reasons to deny coverage.
- Insurance requires annual premiums, whereas asset protection is a one time investment that can last several lifetimes.
That said, I do always encourage my clients to carry a reasonable amount of insurance for the liabilities they are most likely to face. The reason is simple: Insurance companies will pay for your legal defense (though with good asset protection planning you may choose not to defend at all)! The cost of defending against a lawsuit can be absolutely mind boggling. Besides that, the existence of a policy with a reasonable (rather than the highest) coverage limit may encourage a plaintiff’s attorney to settle for the “sure thing” rather than risk going to court.
Proactive Asset Protection
Your assets are protected when you’ve taken advantage of all the legal tools available to you before a creditor claim arises or a lawsuit is filed. In many cases, if a lawsuit has been filed (or even threatened), it’s too late for asset protection.
Some asset protection is automatic. In Florida or Texas, for example, a homestead is practically always off limits. Assets that are automatically protected are called exempt assets, and we’ll talk more about them in future articles.
Another form of asset protection is debt. Yes, you read that correctly. A home valued at $1,000,000 with an outstanding mortgage of $800,000 only has $200,000 of equity in need of protection. In other words, to adequately protect yourself, you need to understand what is and what is not an “asset.” Assets with equity are often times in need of protection (unless they are exempt assets), but many times assets are so encumbered by debt that they provide their own unique form of asset protection, even though you have full use and control of the underlying assets.
That brings up an important point. Use and control of assets, without technical legal ownership of the assets, is the key to protecting wealth.
Asset Protection Trusts
The goal of any asset protection plan should be to reduce your lawsuit profile and eliminate the possibility of creditor claims, whether from litigation, guarantees on business loans, or most other types of liabilities. Plaintiffs’ lawyers are highly attracted to wealth, so the best way to reduce your profile and ward off lawsuits is simple: Don’t own anything!
If you don’t own anything, what can your creditors take away from you? NOTHING.
This might sound absurd, but think about what you really want out of your assets:
- Control – The ability to do what you want with those assets when you want to do it.
- Use – What’s the point of having assets if you can’t use them?
- Legacy – The right to designate where those assets go when you die.
- Leverage or Liquidation – Use of the assets to purchase other assets, secure loans, or the ability to sell them outright.
If you could have all of the above but not legal title, would you lose much sleep? Probably not. My clients actually report sleeping much better at night after creating an asset protection plan!
The good news is that you can control and use your assets while shielding them from creditor claims! The legal tool that we use to achieve this is called an asset protection trust.
If you would like to learn more about setting up an asset protection strategy, please call me today at (850) 803-1166 or email me directly at Wayne [“at”] mwpatton.com. I normally charge $279 for a consultation and asset protection analysis, but if you mention that you found this article through the Florida Healthcare Law Firm newsletter, I’ll waive that fee and speak with you for free.