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A lot of people wonder about the legality of asset protection strategies, and rightfully so.  There are many, many people who market and sell asset protection plans that either won’t work, are unlawful, or both.  All of our plans are 100% legal and 100% effective.  Yes, even the offshore trust component of our plans is lawful and has been upheld by numerous courts.

The purpose of this article is to point out how a very common asset protection strategy is sometimes (though rarely) abused illegally.

Understanding Security Interests

A security interest is simply collateral.  Think of a mortgage.  The property itself serves as security–or a “security interest”–for the loan.  But when attorneys talk about security interests, they’re usually referring to assets other than real estate (though asset protection for real estate is critical).  Practically anything can serve as a security interest: Cars, boats, household appliances.  In the business world, accounts receivable, inventory, and furniture often serve as security for loans.

Borrowing Against Assets

How does this relate to asset protection?  Well, as we’ve discussed before, one component of asset protection is risk management.  Risks come in all shapes and sizes.  One form of risk is the threat of legal attack.  This is a primary risk requiring asset protection for doctors, dentists, chiropractors, and other medical professionals.

But there is another risk that you might want to plan for: The risk that your assets might decrease in market value.  If that is a risk that you want to protect against, there is a relatively easy way to do so.  Simply take out a loan against the asset you want to protect.  That way, you have the cash value (at least a portion of it) of the asset and continued use of the asset.  Of course, you have to pay interest on the loan, but if you’re able to do that, it means that “times are good.”

When times are bad or when asset values decline, however, you have some built in protection.  This is the idea behind strategic default on a mortgage.  When the value of the asset dips below the amount borrowed, the bank gets the asset . . . often times in full satisfaction of the loan.  And don’t for a second think that this is somehow taking advantage of lenders, because they know and understand the risks more fully than can be imagined.

Don’t Sell Assets Serving as Security

The rub is that assets serving as collateral can’t just be sold.  In some states it’s actually a crime to sell such assets without first notifying the lender and then paying off the note out of the proceeds of the sale.  If one does sell assets that serve as security without telling the lender, in many cases the loan will “follow” the asset, and both the lender and buyer can have a claim against the seller of the assets.

In short, taking out a loan against certain assets can provide a fantastic form of asset protection against decreases in market price, but it’s not something that should be abused in any way.

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Pashmina Lalchandani

CEO & Co-Founder, Bar & Cocoa / Owner, Flow Simple
December 9, 2010, Douglass was a client of Pashmina’s

I’ve known Doug in many contexts, as a friend, as a client and as a business partner and he impresses me on all levels. He’s dependable, smart, generous and I wouldn’t hesitate recommending him and his law firm to anyone.
He’s the best and most ethical lawyers providing asset protection with rock solid strategies to give you peace of mind about your wealth. Straight forward, and straight talk. Doug is exactly the lawyer I want on my side. If I send someone to Doug, I know they’ll thank me for it!

Social & Solar Entrepreneur, Pan Afrikan Theorist, Translator/Interpreter,
Founder & Visionary Leader @ Afrikanpride.
March 12, 2011, Marlon E. D. J. worked with Douglass but at different companies

Doug is one of the most powerful thinker i have came across. During the short time that i have known Doug he has been a great source of inspiration. He has a simplistic yet effective and accurate way to analyze anything you bring to his attention, and then by asking you key questions he gets you to see the light at the end of the tunnel. Besides being extremely bright, he is a genuine and caring individual which is why I feel fortunate to know him. I can say without a doubt that he his the person you would want to talk to if you were in need of a person with his expertise.
Most of the lawyers out there will probably meet your needs, but if you are looking for someone to exceed your expectations and give you that wow factor, look no more he is the person for the job.

Patricia Salter

Associate Dentist at Smileology
December 1, 2010, Patricia was a client of Douglass’

I have been a client of Douglas Lodmell’s since 2001. My main concern was asset protection in this litigious society. I can sleep alot better at night knowing I have the instruments in place to protect the fruits of my labor, and that they will not end up in the hands of a slick trial attorney.

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