THIS is a litigious society.
The United States has only 4% of the world’s population, but accounts for 90% of the lawsuits, according to Larry Oxenham, senior advisor for the American Society for Asset Protection. He said there are over 100 million lawsuits currently pending in the United States, and it is estimated that a lawsuit is filed every 30 seconds.
“We are the only country that says to the attorney, ‘Just go for it—there’s no penalty if you fail,’ ” he said. “Some of them sue by zip codes, because they know just the threat of a lawsuit gets you to pay.
“Out of 835,000 attorneys surveyed by the American Bar Association, only 615 said they specialize in asset protection. That means that fewer than one in one thousand attorneys has any clue about how to protect you. If only one in a thousand attorneys knows how to protect you, what are the rest of them up to? They spend every day of their working life on strategies to take what you have.”
And that’s a dangerous thing for anybody who has something.
In his presentation, “How Trailer Dealers & Manufacturers Can Save Thousands in Taxes and Become Invincible to Lawsuits,” Oxenham presented material he said was not available from accountants and not taught in school, and was all supported by the IRS tax code.
His presentation was designed to be preventive legal work by taking the legal threat away.
He said attorneys are looking for two things:
• How much insurance do you have?
“More and more, they’re looking at insurance, because if they can get a check from an insurance company, it saves them all the time and hassle of going to court. A lot of law firms just don’t go to court anymore.”
• How do you own your assets?
“The first thing they look at is your home. If you live in Florida or Texas, you can’t lose your home in a lawsuit. A lot of people put their home in a living trust, which is fine. The second thing is investment properties. Maybe you own land with a business partner. You always have to say to yourself, ‘If something happens to my business partner, does it carry over to me?’”
He presented three problems—lawsuits, taxes, and probate and estate taxes—and provided solutions to each of them.
Oxenham said many advisors recommend their clients operate as a sole proprietorship because of the simplicity—you simply have to report the business on Schedule C of your tax return.
But while a sole proprietorship allows a person to deduct most business expenses, there are tax deductions and tax reduction strategies that apply to S-corporations and C-corporations that can’t be used by a sole proprietor.
And there’s also the problem of liability. A sole proprietorship provides zero protection against lawsuits. If your sole proprietorship is sued, all of your business and personal assets can be taken.
“The most dangerous thing you will ever do in America is to own a company jointly,” he said. “Create a corporation that will manage the business, but you should not own anything in that corporation. Take ownership of everything out of your name and put it in your spouse’s name because she has nothing to do with the business. That way, if you get sued and you lose, you got a couple of million dollars of insurance, but they can’t get your assets.
“There are only two reasons in America to have a corporation: Corporations are for taxes and management, never ownership of assets. Donald Trump, the most in-your-face money guy in America, never gets sued. He owns 60 million square feet of real estate. He says you have to control everything but not own anything.”
He said the idea of a Limited Liability Company (LLC) was to solve the problems created by S-corporations.
“If it was 20 years from now, I bet we’d all have nothing but LLCs, and S-corporations would just disappear,” he said. “The LLC is a spectacular tool. LLCs are great for real estate. The assets you’re worried about losing should be put in the LLC.”
He said the Limited Partnership has been around since 1916, has been involved in all meaningful cases in asset protection, and has been upheld in all 50 states.
“If you have a properly structured limited partnership, you have absolutely bulletproof protection in all 50 states,” he said. “The biggest difference between an LLC and a Limited Partnership is that a Limited Partnership has to file a tax return every year. Use limited partnerships for personal assets that are valuable to you. Let the corporation manage and provide tax advantages. Let the LLC protect real estate. The LP is for personal assets.”
He said the Limited Partnership and LLC were set up similarly to have someone in charge: a managing partner or general partner. The general partner is always 100% in charge, even if he/she has only 1% equity. Limited partners never have any control.
“Before you decide who gets to be limited partners, know that the IRS says limited partners do not have to be human,” he said. “It could be any other legal entity you have: a kid, your corporation, or you. You can be a general partner and limited partner. The purpose of a managing partner is control. It’s the corporation you use for control, so you’re going to make the corporation your managing partner. And everything else you have that you could lose in a lawsuit is the limited partner.
“If you were to go to court today and the judge said ‘guilty,’ does it mean you did anything wrong? It just means your attorney lost. They issued a judgment and once it’s issued, attorneys get a document called writ of attachment, and that’s their permission to take everything. Everyone in this room is basically one judge’s bad decision from starting over, which makes no sense at all. However, with a properly structured limited partner or LLC, the judge can still say, ‘guilty.’ They can never take assets from a limited partnership. But they can take all net earnings.
“But in 1961, there was a clause that became one of 25 clauses that changed the game. We’re going to give you the authority or power to make some decisions. Paragraph 2.9 says, ‘The managing partner or general partner reserve the right to withhold all distributions of profit.’ How much of your hard-earned money do you want to pay to an attorney and his clients? How about zero?”
He said that in 1977, the IRS issued Revenue Rule 77-137, which prompted The Wall Street Journal to write that the “Limited Partnership is now the only A+ asset protection tool in America.”
“Under this, the IRS said if there’s profit, we (the IRS) get paid,” he said. “Who wants to pay the IRS? The exact words of the IRS: The creditor now must pay income taxes even if no income is distributed by the partnership or LLC. If you sue me and win, you get my tax bill.”
Then there’s the issue of probate, with fees that can run between 2% and 12% of the value of the estate.
“The first thing you want to do is eliminate probate. You eliminate delay, costs, and what I call ‘the probate chaos.’ It’s also probate attorney welfare. It’s just basically guaranteed income for the legal profession.”
To do that, he said a living trust is set up between husband and wife. With a revocable trust, there must be one for the husband and one for the wife.
“The living trust wants to know: Who are you? What is the stuff? And who do you want to give it to? When you’re done with it, stick it in a drawer. It does not have to be filed. What’s the one thing you need immediately? It’s the living trust. That is the greatest protection tool for your family.” ♦