The Landmines of Wealth Protection

-Beware of Highly Touted Asset Protection Devices That May Cause More Harm Than Good!

By Albert Aiello, CPA, MST, Investor

Protecting your assets is of the utmost importance, especially for real estate investors and especially in today's sue-happy society. Unfortunately asset protection has become an industry, and one that is heavily marketed and abused with conflicting and incomplete information being delivered. It has become overrun with asset protection mills grinding out thousands of cookie-cutter expensive kits (such as FLP kits) that often do not fit the investor's needs, or the investor still ends up paying a lot to a professional to do what the kit does not cover, or does wrong. And there are others who sell expensive legal services of overly complicated confusing, convoluted mazes of all kinds of entities and zigzag charts a rocket scientist could not comprehend.

Before going further, while I will sometimes use the term "asset protection" for learning purposes, the proper terminology is Wealth Protection. This is because it's not just asset protection in a vacuum. Instead Wealth Protection is all-encompassing in that it is the integration of many facets protecting your financial resources as follows:

• Lawsuit Protection
• Financial Privacy
• Entity Structuring
• Income Tax-Reduction
• Estate Tax-Reduction
• IRS Audit-Proofing
• Estate and Legacy Planning
• Investment Planning
• Marital Planning
• Insurance Planning.

For instance, an asset protection vehicle may have a great legal benefit (such as lawsuit protection); but (like a drug) bad side effects as to other facets of wealth protection (such as income tax-reduction). The frequent result is that the legal advantage is negated by any such adverse side effects. When evaluating an asset protection vehicle you have to look at all facets, especially those that could have a detrimental impact to your wealth.

To help better educate real estate investors and other entrepreneurs, I have created a series of articles on wealth protection, called The Landmines of Wealth Protection which will discuss a number of wealth protection vehicles or strategies that could be dangerous to your financial health. Yet many of them are touted, sold and forced down your throat by today's self-serving asset protection promoters. They are inadequate to protect your wealth, not necessarily because the vehicle is bad unto itself, but because it's either inappropriate for its recommended use; or it's incomplete for its recommended use; or it's too complicated for its recommended use; or it's misunderstood for its recommended use; or too expensive for its intended benefit; or it's abused, not used correctly for its recommended use; or its misunderstood or ignored by legal or taxing authorities. Or, sometimes the vehicle is simply illegal or ineffective unto itself. You have heard of these landmines as follows:

• Family Limited Partnerships (FLP's)
• A separate entity (such as an LLC) for each and every one of your properties
• Having your own management company
• Revocable Living Trusts (RLT's)
• A separate entity for non-dealer flips, apart from another entity for rental keepers
• Corporations (C and S)
• Single-Member LLC's
• State-Statutory Entities Holding Personal-Use Assets
• Offshore trusts
• Any other vehicle or strategy that is inappropriate, ineffective, incorrect, or illegal.

Each of the above will be discussed in separate articles to follow. Included in the article will be the appropriate use of the vehicle or strategy (if any); when not to use the vehicle or strategy; the reasons for my recommendations, along with any superior alternatives to the vehicle or strategy. Included will be structures that are far more effective and less costly.

And in case you are asking," Who's this guy?" Below is a brief bio as to my qualifications for writing these articles.