Asset Protection 101

Archive for the ‘Asset Protection from Taxes’ Category

Homestead Exemption or Homestead protection is one of asset protection strategies you can use on your real estate. Some states have more homestead exemptions or homestead protection and some has less. Asset protection using homestead exemption and homestead protection should be part of your estate planning or real estate tax planning.

Florida Homestead Exemption

Florida homestead exemption is very popular because Florida homestead exemption is one of the few states’ homestead protection that is unlimited. Find out the limit of the homestead exemption or homestead protection in you state and take advantage of homestead exemption and homestead protection in your state.

What is homestead protection or homestead exemption?

In most states, the equity in your primary real estate residence is exempt from creditor’s claims. Only a few states provide an unlimited exception. So whatever the limit of your homestead protection is, make sure the equity in your home is about the amount of your homestead protection.

For example, if your state homestead protection is $25,000, a creditor cannot force the sale of your home if you have less than $25,000 in equity.

How to obtain homestead protection or homestead exemption?

In some states, you must file a public document to claim your homestead protection. Contact your local county recording office to find out the specific process as well as the homestead protection exceptions.

What if my state does not have a homestead exemption or homestead protection?

If you live in a state without a homestead exemption or homestead protection, a judgement creditor can put your real estate property up for sale at a sheriff’s auction to the highest bidder. Usually at a sheriff ’s auction real estate properties will sell for much lower than their market value.

Your Nevada corporation or Wyoming corporation lending money to your home state corporation:

In order for your home state corporation to conduct business in your state, your corporation will need some funds. Your Nevada corporation or Wyoming corporation can send your home state corporation a letter of solicitation advertising for loans. Your home state corporation then fills out a loan application form and send it back to the Nevada corporation or Wyoming corporation. The Nevada corporation or Wyoming corporation then sends a letter of loan approval back to your home state corporation with a promissory note to execute.

Your home state corporation then executes the promissory note and send it back to the Nevada corporation or Wyoming corporation along with appropriate documents.

Nevada corporation or Wyoming corporation leasing equipment or real estate

The Nevada corporation or Wyoming corporation can also own a plant, factory, or real estate and lease it to your home state corporation. The Nevada corporation or Wyoming corporation can also charge your home state corporation for marketing or business consultation services. The key thing is to have the Nevada corporation or Wyoming corporation charge your home state corporation for legitimate services.

Not owning anything is a great asset protection strategy

If you own assets free and clear, people might sue you for those assets. Instead of owning your assets outright, you should set up a corporation to own these assets and you could lease them from your corporation. That protects you from losing assets in a lawsuit. Not owning anything is a great asset protection strategy. After all if you get sued, what can the plaintiff get if you don’t own anything?

The reverse is also true. If you corporation owns everything but does nothing, then no one can sue the corporation since it does nothing. Having a corporation owning everything and does nothing is also an asset protection strategy.

Taxation of home state corporation

If the only income the home state corporation receives is loan money, the home state corporation does not pay taxes.

For asset protection, it is sometimes a good idea to set up multiple corporations. Many good asset protection strategies involve the use of multiple corporations or multiple limited liability companies (LLC). When setting up multiple corporations, you can set up different corporations or limited liability companies (LLC) in different states.

Start a corporation in your home state

First, set up a corporation in your home state. You need to have a corporation in your home state with physical address in your home state.

Incorporate in a tax advantaged state

The next corporation you will set up is in a tax advantaged state. For example, you can set up a Nevada corporation or a Wyoming corporation. You will need a registered agent who is local in whatever state you incorporate in. If you are setting up a Nevada corporation, you need a Nevada registered agent. If you are incorporating in Wyoming, then you need a Wyoming registered agent.

It is best that the Nevada corporation or the Wyoming corporation does not have the same shareholders, directors, and officers.

Funding corporation

After incorporating a corporation in your home state and a corporation in a tax advantaged state such as a Nevada corporation or a Wyoming corporation, you can start funding the Nevada corporation or Wyoming corporation with capital.

You can fund the Nevada corporation or Wyoming corporation by purchasing shares or lending money to the corporation. Make sure there is plenty of legal paperwork to show how you are lending money to the corporation or purchasing stocks. If you are lending money, make sure it is proper. For example, you receive interest as any lender would. You lending money to your corporation must be in the same way as you lending money to any third party corporation.