Margery experienced great success with her business as an influencer. Over the years she has accrued significant balances — well into the high six figures — in her business bank account … that is until she got sued.
As an influencer, just one innocent but derogatory pronouncement about an ongoing business concern can land one as a defendant in a business tort claim. Because it is almost always less expensive to settle a tort case than to let it go to trial, and without a business liability policy as a safety net, Margery decided to go that route. Unfortunately, she had to settle for more than she anticipated due to the large amount of her liquid assets. Settlements are generally covered under a confidentiality and nondisclosure agreement, but one can assume it was well into the six figures.
Hoping to better protect herself from predatory lawsuits in the future, Margery sought advice from her trusted advisers, including her estate planning lawyer. The attorney advised her to move as much of her liquid assets as possible from her home state of California into an Asset Protection Trust (APT) domiciled in one of the 19 states* that offer asset protection trusts. She should keep the remaining funds in a Delaware bank or trust company, the attorney advised.
For more than 150 years, Delaware law has prevented the attachment or garnishing of deposited funds from any of their banks, trust companies, savings institutions or loan associations. This law was enacted to allow these types of accounts to do what was intended: grow. The types of institutions that want to manage investments but that will also allow attachments on their deposits are not conducive to investment management.
Margery agreed that there was no practical reason to keep her assets in California. She painfully learned that lesson and now has an asset protection trust on deposit with a Delaware trust company.
New Lawsuit Ends with a Better Result for Margery
A year or so after establishing her new trust, Margery got hit by another lawsuit by another opportunist looking to use “lawfare” for a quick settlement. Her attorneys quickly pointed out to the plaintiff’s lawyer the difficulty they would have in collecting on a judgment, even if they won the case. Litigation is very expensive, and plaintiffs are not likely to sue if there is doubt as to collectability.
Margery was able to settle this case for a nuisance value sum (in our experience, settlements generally are under 10% of the amount sought) and was happy to do so.
Margery remains confused as to why her lawyer didn’t tell her about setting up an asset protection trust and creating a Delaware bank account before she was sued the first time. But she was sure glad she put a plan into place well before the second lawsuit was filed.
Successful business owners have great exposure and are at great risk for being sued, as Margery learned the hard way. Over 15 million lawsuits are filed annually in this country.
If you are looking to protect your legacy from predators, consider an asset protection trust and a Delaware bank or trust company to hold the funds for greater peace of mind.
*The 19 states that allow domestic asset protection trusts are Alaska, Connecticut, Delaware, Hawaii, Indiana, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia and Wyoming.
Jeffrey M. Verdon, Esq. is the lead asset protection and tax partner at the national full-service law firm of Falcon Rappaport & Berkman. With more than 30 years of experience in designing and implementing integrated estate planning and asset protection structures, Mr. Verdon serves affluent families and successful business owners in solving their most complex and vexing estate tax, income tax, and asset protection goals and objectives. Over the past four years, he has contributed 25 articles to the Kiplinger Building Wealth online platform.