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Asset Protection Options for Georgia Residents

An overview of Georgia asset protection laws and the many options to secure exemptions from creditors in both Georgia and Tennessee, including Domestic Asset Protection Trusts, Spendthrift Trusts, and Offshore Asset Protection Trusts.

Whenever somebody comes into my office, I will typically ask them the same thing, which is, “What has prompted you to want to get your affairs in order?” And, as you can imagine, I get a lot of different answers to that question. Some people that come in, though, maybe they know that they want asset protection. Maybe they realize that they need asset protection after discussing it. Today, I’m going to talk to you about the asset protection in the context of rental properties. I see that a lot in my practice, people who will buy homes for rental purposes, discover that they need to do some type of asset protection. And, so, you might ask, “Who could benefit from asset protection?”

It’s typically for those that maybe they own enough assets that they want to keep them, but “They’re not too big to fail,” as they say. Perhaps you plan to sell a business, or perhaps you plan to guarantee a loan. But a very typical situation that I see in my practice relates to rental properties.

But, really, every person that has assets that they want to protect is a potential candidate for some type of asset protection. Whenever they come into the office, we’ll often talk about gifting strategies. As you may know, there’s a $15,000 gift tax exemption, meaning that you can give away $15,000 to any person without it incurring a gift tax. And, you might imagine that I find that a lot of people in my office that come in, they think that if they have a son who’s married and has a couple of children that they can leave $15,000 to the child, and that’s kind of it.

The way it works is that you can really give it to anybody. You can give $15,000 to your son, give $15,000 to his wife, give $15,000 to each of your two grandchildren. And then, you have $60,000 that you’ve given away that will not incur any gift tax. And so, there are ways to protect your assets by giving them away. And there are certain tax laws that allow you to do that without incurring any type of tax penalty. So, we always discuss gifting strategies with people that come in that may need to protect some assets.

Other things that we discuss with people that come into the office include exemption planning. You may be familiar with some of these things, but some things are already exempt from creditors like retirement plans and things of that nature. In Georgia, as an example, a portion of the wages that you earn is exempt. And, so, there are certain exemptions that people have they may not even realize that they have. I don’t practice in Florida, but I happen to know this about Florida, they have a homestead exemption there. And, so, that’s another type of exemption you might be able to take advantage of.

And, so, after we’ve talked about gifting strategies and exemption planning, we will talk about one of the more popular things that people take advantage of when they come in. It’s called a “Spendthrift Trust.” You may have heard the term “spendthrift.” Maybe you haven’t. But, spendthrift is, essentially, someone who is not too savvy with their own money. And, the great thing about a Spendthrift Trust is that the Trust assets are not subject to creditors, and the beneficiary, perhaps your children, they can’t pledge the Trust assets to others. They may do this, as an example, not wanting to take a loan from somewhere and say, “Well, I can offer the Trust that’s in my name as security.” Well, they can’t do that with a Spendthrift Trust. And so, it really protects them from themselves in a lot of cases, and it’s designed to help people protect assets of someone in their family who might be considered what we call a spendthrift.

Another thing that we will discuss with people are, and this is in the context of rental properties, but any other type of business interest they may have that they may not have necessarily considered. I’ll give you an example. Right now, I’m representing a doctor, and she uses her discretionary income to buy rental properties. She’s been doing that for quite some time. But whenever she would buy a rental property, she would buy it in her own name and, before you knew it, she just had tons of rental properties set up in her own name.

The problem with doing it that way is that if someone were to slip and fall at one of your rental properties, it really opens up liability to all the rental properties if you have them in your own name. So, one of the things that we have done for her is, we have set up an LLC, a Limited Liability Company, for each of the rental properties that she has. That way, if someone were to slip and fall at one of the rental properties, her real limit to liability is going to be that rental property for the most part. Her other rental properties, because they’re owned by other LLC’s, generally won’t be subject to liability from a slip and fall. So, it really protects her from any one given incident at one given rental property.

We’ll take those membership interests and put them into what we call the Revocable Living Trust for her. She is fairly young. She’s got a long life ahead of her and, perhaps, even many more rental properties that she’ll buy down the road. But, at this point, the Revocable Living Trust is going to work well for her. There are other types of trusts that one might be able to take advantage of, but for her the Revocable Living Trust is going to work out well. So, we’ll transfer her membership interests into those, and they’ll avoid the probate process and things of that nature.

By the way, had something happened to her while all those rental properties were in her own name, it would have been quite the ordeal to try to get those rental properties out of her estate to her beneficiaries or to her heirs. So, that’s another benefit to creating the LLC’s and putting those into what we call the Revocable Living Trust.

Another level of protection, and these are different levels of protection. Gifting strategies is probably one of the lowest on the totem pole, so to speak, lowest on the ladder of exemption, and planning’s the next. Maybe a Spendthrift Trust is next and LLC’s for rental properties. You keep going up the ladder as far as protection goes.

The next one you might come to is what we call a “Domestic Asset Protection Trust.” We call them “D.A.P.T.’s.” D.A.P.T.’s, Domestic Asset Protection Trusts. As you can imagine, just from the name itself, it is a Trust that is set on American soil that allows you to protect your assets. Not every state allows it. I happen to be licensed in Georgia, and I happen to be licensed in Tennessee. Tennessee allows for Domestic Asset Protection Trusts, whereas, Georgia does not. However, Georgia is in the process of updating their laws to allow for Domestic Asset Protection Trusts. I imagine that will take effect some time very soon. And partly because they want to keep up with the competing business interests of other states. And this has worked well for Tennessee and other states, and so they want to compete for that business. And so, they’ve created that to do that. Tennessee allows for it. Georgia is on its way. There’s many other states that allow it. Check to see if your state does. It’s a very powerful tool to allow you to protect your assets that we do here on American soil.

Further up the ladder, this is probably the most comprehensive and most complex Trust instrument that we use to protect our clients’ assets. But, we have clients who need to do this. And, so, this is something that they can do. This is called an “Offshore Asset Protection Trust.” And, as you can imagine from the name, it’s one that is set up in an offshore or another country that will add an extra layer of protection to a client who might need it. As an example, you might set up this Trust in a country like Nevis. Nevis happens to be an island in the Caribbean, and they have asset protection laws there that are very complex and work well for people that are trying to protect their assets. It also happens to be the birthplace of Alexander Hamilton. Just an interesting little side note about the island of Nevis. You don’t have to pay me anything for that little tidbit.

Another country that is very popular to set up an Offshore Asset Protection Trust isn’t an island at all. It happens to be the country of Belize. It’s a country in Central America, and people use these versus Domestic Asset Protection Trusts when they need an extra level of protection. Although, these days, you can use the Offshore Asset Protection Trust, but the D.A.P.T.’s are becoming much more effective. So, we’re using them less and less, the Offshore Asset Protection Trust versus the Domestic Asset Protection Trust because the D.A.P.T.’s are becoming much more effective. And, that’s partly because, like I said, the states are competing. They want to have the better laws so people will come and set up the Trust there. So, they’re becoming more and more effective these days and much more common in the type of asset protection cases that we do.

One of the things you want to remember is that nothing is bullet proof. There’s no such thing as a Perfect 10 when it comes to asset protection. There’s a lot of factors that go into whether you’ll be able to protect your assets or not. But using these asset protection strategies can be very effective in things like deterring litigation. If someone were to know that you’ve taken the steps to protect your assets in these ways, they may be less inclined to file a lawsuit against you, knowing that it may be very difficult for them to access the assets at all, even if at all they would be able to. So, it might deter them from filing the lawsuit in the first place.

Another benefit to doing this type of asset protection planning is it can avoid damage to your reputation. If a lawsuit were to happen to get filed against you, it becomes part of the public record. And maybe you might be in a type of profession where that’s a concern to you. And, so, setting up these Domestic Asset Protection Trusts and Spendthrift Trusts and things of that nature might help you avoid any damage to your reputation by deterring litigation against you in the first place. And, those are the types of benefits, the side benefits you can expect from doing this type of asset protection. But, again, nothing is bullet proof. There’s no such thing as a Perfect 10. It’s very fact-specific. And, that’s why working with an established estate planning attorney can help you in those types of things.

Again, asset protection Trusts are very popular, but we go through the gifting strategies, the exemption planning that people have, whether a Spendthrift Trust will work for them. If you have businesses that haven’t been incorporated, you might want to set up LLC’s for those.

Finally, if you need the use of a Domestic Asset Protection Trust, we do those for our clients as well as Offshore Asset Protection Trusts. It just kind of depends on the level of protection that you might need. It’s something that we help clients with, and it’s something we would be glad to assist you with, as well, if asset protection is something that you’re concerned about, and you need that piece of mind that goes with knowing that you’ve got a plan in place. We’d be glad to assist you.