The client information summarized here represents an actual client.  Names and all identifying information has been removed or changed to protect the attorney client privilege.  This information is designed to be used as an instructional tool only.  Determining the appropriateness of any planning for any particular client must be done with respect to the facts as relating to that client through a customized analysis process with a qualified attorney only. To schedule an analysis with a client and one of our attorneys please contact us directly at 800-231-7112, or by email at ben@lodmell.com.

Client Profile

Client ( Mr. K) is a commercial airline pilot, married with three children ages 8,13 and 17. Spouse (Mrs. K) is a successful real estate agent specializing in the luxury residential marketplace. The clients collectively own 4 single-family rental properties held in an LLC. Mr. and Mrs. K have a net worth of $1.9M

Primary Client Concern

Mr. and Mrs. K’s 17-year-old son was recently involved in a recreational (ATV) vehicle accident on their family property with his girlfriend who suffered significant injuries.  Although not life-threatening, the girlfriend is currently hospitalized and may require long-term care.  To date, there has been no threat of legal action on behalf of the girlfriend’s family and clients do have liability insurance coverage which is likely to fully cover any claim.  Nevertheless, this has triggered their alarm and the K’s would like to have more protection for this type of unexpected incident in the future.

Net Worth Summary

Total Assets: $1,900,000.

Real Estate:
-Primary Residence Value:        $600,000
-Primary Residence Loan:         $250,000
-Primary Residence Equity:      $350,000

-Rental Home(s) Value:              $750,000
-Rental Home(s) Loans:             $375,000
-Rental Home(s) Equity:            $375,000

Liquid Assets:
– Checking Value:                         $180,000
– Stocks Brokerage Value:          $475,000

Other Assets:
– Beneficiary of Fathers Deed:   $110,000
– Jewelry                                          $ 40,000

Life Insurance:
– 1st Life Insurance Value            $175,000

Retirement Assets:
-IRA Value:                                      $180,000
-Spouse IRA Value:                       $210,000

AP Structure Implemented

Based on their asset profile we implemented the following tools:

The Asset Management Limited Partnership™ – The AMLP is an Arizona Limited Partnership that forms the nucleus of this wealth preservation plan as a “holding company” for the client’s assets. The AMLP centralizes the management of liquid assets – cash, savings, investments, and securities – while placing a legal barrier around them. Mr. and Mrs. K are the General Partners of the LP with 2%, while the Bridge Trust will be the majority limited partner at 98%.

The Limited Liability Company (LLC) – We integrated the client’s existing LLC (which holds the rental properties) by transferring the membership interest into the AMLP which will now hold 100% interest of the entity.  This allows the LLC to be considered single member for tax purposes as well, simplifying their tax reporting requirements.

The Bridge Trust® – The BT will be the majority limited partner of the AMLP (98%). The client does not live in a state with particularly good homestead laws ( Florida/Texas) so it is important to protect their primary residence by transferring the deed to their home into this trust.  The Bridge Trust® is registered offshore but domesticated for tax and administrative purposes. As such, the clients will not lose any of the tax benefits of ownership such as tax-free capital gain and home interest deductions and will maintain control as the Trustee. In the event that there is a serious legal crisis, the Protector may declare an “Event of Duress” which will trigger the sequence of the Trust being fully offshore.

Click here to see a flowchart of the AP tools utilized in this planning.

Fraudulent Transfer Analysis 

A fraudulent transfer or conveyance is typically defined as a conveyance for less than full consideration with an intent to delay, hinder, or defraud a creditor.

In each asset protection case, we do a fraudulent transfer analysis to determine if the clients are in a position to implement planning.  In this case, there are several factors we consider:

– There is no pending claim against the clients.
– Any potential future claim would be covered by existing insurance.
– The extent of the claim is likely to be less than the insurance coverage.

Based on these consideration, we have determined that it is acceptable to proceed with planning, without excepting any pre-existing or potential claims.

Take Away

Although this is an unfortunate situation for the “K” family, it outlines a textbook example of the various risks that many clients unknowingly face and the need for proactive AP planning.  In this case, they are likely covered by insurance; however, even a small chance of an excess judgement is causing the family major stress, and this planning will greatly reduce their anxiety.  This further supports them in moving through this process in a less stressful and more productive way.  They will likely call us 3-6 times during this first year, primarily as comfort calls.  These calls typically involve reviewing the planning as well as helping them in understanding what some of the claims processes they are required to go through like depositions or financial questionnaire, really mean.  These calls are invaluable to the client and represent a large part of the service we provide.


About the Author: Doug

Douglass S. Lodmell is an expert in estate planning, taxation and strategic asset protection for domestic and international clients. Douglass is the founder of Asset Protection Council & Lodmell & Lodmell Law Firm.