How to Keep From Getting Sued

Five Steps to Keep You from Losing Your Assets

Working to keep one’s self from getting sued is part art and part science and it takes advance planning and resolve. The combination of the two is frequently referred to as "asset protection" and can be achieved in a myriad of ways depending on one’s wealth, and risk profile.

For one person it could be a complex structure of trusts, foundations, LLC's and International Business Companies (IBC's) while for the next person it could simply be cancelling the family credit card. It is by its very nature individualistic‎ and different for each person. So what is ideal asset protection for one person is different for another. There are however certain domestic and international techniques that can keep you off the radar screen and out of lawsuits, or increase your chances of winning if you do get sued.

First, avoid as much as possible holding any assets in your own name. In some US states such as Florida there is what is referred to as a homestead exemption. This exemption protects your primary home from lawsuits‎. In other States such as Pennsylvania the homestead exemption only protects the first $100,000 in value of your home meaning if your home is worth more than that, you will have exposure when it comes to law suits. Other states do not even recognize a "homestead" exemption meaning your primary residence is fair game as an asset for plaintiff lawyers to target.

By having the property out of your name and in the name of a company or trust, it will not be easy to find out that you are the owner of the property. Most plaintiff lawyers will run an asset search on someone they plan to sue. If that search comes back with little or no assets, then it makes it less interesting for that lawyer to handle the case on a contingency bases. Whenever the plaintiff lawyer wants to charge his/her own client advance fees to pursue the litigation, it makes it less likely the plaintiff will bring the lawsuit. So keeping assets out of your sole name and in the names of structures or at least "joint names" with your spouse makes the likelihood of lawsuits go down substantially.

Secondly, maintain "debt" on assets that can’ not be moved or protected. A home worth $1,000,000 (which isn't all that much home in some places like San Francisco or New York City)‎ that has no debt versus the same property with $950,000 in debt attracts or repels plaintiff lawyers accordingly. The property with no debt in a low or non- existent homestead exemption state is a juicy asset waiting to be attached. The same property with a bank creditor as mortgagor is of no interest at all.

While bankers are shy to over lend against properties as they did before 2008, they are also more than willing to give first and second mortgages and lines of credit that essentially wipe out most of the true equity in the property. Move the equity you pull out of the property into the type of legal structures discussed below and you'll protect both the property and the liquid equity.‎ No plaintiff lawyer will try and force a sheriff sale of a property heavily mortgaged to try and satisfy a lawsuit because they know they will never be able to collect in front of the bank and if there is no value in the property beyond what the plaintiff owes to the bank, then there is nothing worth spending time and money on to go after in court.

Third, let's talk a little bit about "insurance". There are really two schools of thought when it comes to having insurance, such as homeowners, umbrella, professional liability, etc., and that ‎is that you either need to really have quite a lot to protect yourself in all types of scenarios, or you need to have none.

The first school of thought is self-evident. You make sure as many scenarios are protected by insurance and then when something bad happens‎, you pray that the insurance will cover you. If it does cover you, then you hope there will not be claims that exceed the limits of your policy. You'll pay premium to the insurance company for their protection on an annual on-going bases and then if something happens that causes the insurance to have to pay out damages on your behalf, the premium will increase.

Frequently plaintiff attorneys use the value of these policies against defendants by claiming damages beyond the value of the policy in order to get you to settle for the value of the policy. So if your policy limit is $1 million, they want a $1 million to settle. If it's $3 million they want $3 million to settle. There is actually a perverse‎ force at work that dictates that the more insurance you have, the more damages you will pay. This is unrelated to the actual damages or risks involved in whatever brought about the lawsuit (negligence for example) in the first place.

One method to counteract this perverse force is actually to negate it with an equal force designed to take the attraction of the policy off the table‎. This involves simply doing away with your insurance wherever possible and employing the legal minimum amount in areas where state law mandates insurance (such as automobile). This concept is referred to as "going bare" and means that you simply do not insure your risks. Of course for this strategy to be effective, you must not have any assets in your legal name.

The combination of no assets and no insurance has thwarted many a plaintiff lawyer. Consider the case of an obstetrician who was paying $100,000 a year in malpractice insurance for $3 million in coverage. The doctor was named frequently in lawsuits and magically the plaintiffs always asked for $3 million or more in damages. Eventually the doctor cancelled the insurance and miraculously the law suits stopped. The insurance was the low hanging fruit that the plaintiff lawyers wanted to access. As soon as it was gone, their willingness to take on the same kind of lawsuits disappeared. The doctor saved the $100,000 in premium as well as the headaches associated with the litigation.‎ And because the doctor had no assets in his name, the doctor's lawyers could threaten to simply file for bankruptcy if a plaintiff lawyer followed through with any type of successful litigation against their client. There is no bigger turn off for a plaintiff's lawyer then to realise that even if they engage in months or years of litigation. and even if they win, their claim will be flushed down the toilet through the bankruptcy process. That is certainly not low hanging fruit to the plaintiff lawyer.

Penultimately, gift your assets into an asset protection trust (APT). With an APT you can still enjoy the benefit of the assets as a beneficiary without being the legal owner of the assets. If someone tries to go after the assets and sues the Trustee of the trust, there will not be any "standing" to sue that trustee. The Trustee as well as the trust itself are independent legal/juridical persons.  

ATP's are also frequently designed with estate planning in mind with the use, income or title of the assets passing in the future (frequently at the death of the trust grantor)‎ to the spouse, children or grandchildren beneficiaries. APT's are a powerful vehicle because they are a different legal "person", separate and distinct from the individual gifting the assets and also because the Trustee and trust are usually set up in foreign jurisdictions with stronger asset protection features.

The California doctor with no insurance may gift his wealth into an asset protection trust in Nevada or even better somewhere like Belize. There is no way to force the Trustee or trust into court in California.    If the plaintiff's lawyer wants to go after the trust in Nevada or Belize they will be fighting an uphill battle that is long and usually ends in the protection of the assets rather than an enforceable judgment in the plaintiff's favor. Because the plaintiff's lawyer knows what they are facing, the time involved and the slim chance of success, they are much less likely to go after those assets, even if they have proof that the assets originally came from the trust grantor who is the real defendant in their litigation. 

English Common Law trusts and subsequently trusts in the US and many other English Common Law jurisdictions including Canada, Belize, BVI, Cook Islands, Nevis, Malta and many others have  over 1000 years of trust law history on their side. Combining that type of history with jurisdictions that are protective by their very nature and have solid asset protection laws, makes it overwhelmingly difficult for a plaintiff's lawyer to succeed in getting the asset. Knowing in advance that you have almost no way to win, changes the dynamics of the litigation, and removes the type of institutional "greenmail" that exists in many state courts of the United States. This is truly the best method to put your assets out of harm's way.

Lastly, people with money need to keep a low profile in their lifestyles. This is not a legal structure but rather just an important way to live. If you drive around in a new Porsche Cayenne, flaunt your $25,000 rolex, wear designer clothes‎ and are seen in the newest expensive restaurants, then your chances of being sued go way up. If you live modestly like the "Millionaire Next Door", drive a Ford 110 pickup truck and keep a low profile, your chances of being sued goes way down. I'm not saying you shouldn't enjoy your wealth, but I am saying don't flaunt it.

I remember a Vietnamese French doctor friend, now deceased, whose house I visited a number of times.‎ The outside of the house was plain, almost unkempt. He drove an old and banged up Volkswagen. When you went into his house, it was like entering some type of Asian temple/Palace with wealth and riches beyond belief. He told me the local tax assessors determined his property taxes by how the outside of the house looked. Hence he wanted the outside to look a little dingy. The inside where only a few select friends and family ever entered was where he showed off his wealth.

How you ultimately show off your wealth will certainly influence the likelihood of a future plaintiff and their lawyer’s interest in suing you. If you want to avoid lawsuits, lead a modest looking life.‎ Keep the "show" of wealth tucked away where few people will see it.

If you take these five steps, your assets will go from being the low hanging fruit every plaintiffs' lawyer wants to go after to the tiny apple at the very highest reaches of the tree. And while there is no completely bullet proof method of stopping lawsuits altogether, these five steps will make it very unlikely that you'll be sued and if you are sued, very unlikely that a plaintiff will ever take away any of your hard earned wealth.
Joel M. Nagel is an international lawyer and entrepreneur focusing his practice in the area of asset protection, cross-border transactions, and global investment. He speaks all over the world on the topics of asset protection, global banking and investment, and international legal compliance. 

Joel has written articles and has been quoted by Forbes, Fortune, Live and Invest Overseas, Hemispheres Publishing, Stansberry Research, Oxford Club, Pirate Investor, True Wealth, Islands magazine, Business Times, Physician’s Money Digest, and the Simon Letter. Joel can be reached at Nagellaw@aol.com or +1-412-749-0500.  Follow him on Twitter at @Nagellaw.
Court by Saúl Bucio is licensed under Unsplash License
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