What Is Asset Protection?
If you are a trucker, or if you own a trucking company, then asset protection should be on your radar.
When we speak about asset protection, we are referring to the set of legal strategies by which debtors are able to protect their assets from creditors.
Let’s say that someone sues you and wins… or let’s say that they don’t win, but you agree to pay them some amount of money as a settlement (which, by the way, is how the vast majority of lawsuits end).
If this happens, then the person who sued you will become your creditor. They will have a legal entitlement to take your money and other assets, and you will not be able to do anything about it.
How can you avoid this happening? The best strategy, of course, is to not do anything wrong that gives others an excuse to sue you. But this, in and of itself, guarantees nothing. Plenty of people are sued, often successfully, despite having done nothing wrong.
This is particularly true in high-risk fields like trucking.
Fortunately, there are a number of legal and financial strategies you can take to protect your assets. These can be very effective, but they must be done properly. If they do not meet the right legal requirements, then they will be worthless, and might even get you in trouble.
The Inherent Risks of Trucking
The simple truth is that trucks are very dangerous vehicles:
- Trucks are significantly larger and heavier than an ordinary passenger car, let alone a bicyclist or pedestrian.
- Trucks have longer stopping and starting distances than cars, meaning that a trucker will take a longer time to slow in response to a danger ahead.
- Trucks have more and larger blind spots than cars, making it harder for truckers to see their surroundings.
- Truckers are often working long hours with little sleep, trying to meet tough deadlines… and while most truckers are good and responsible drivers, a few do cut corners.
All traffic accidents are not alike: getting hit by a 40-ton semi is exponentially worse than getting hit by a Segway. This is why there are rarely minor “fender benders” with trucks. A crash involving a truck is almost always a big deal.
Of course, it is a testament to the skill of truck drivers that so few accidents happen, that the vast majority of runs end successfully and without incident. But when a glitch does occur, it often results in death or serious injury, and this means a big lawsuit, both against the trucker behind the wheel and other entities up and down the supply chain.
Nor are motor vehicle accidents the only thing that can go wrong with trucking. Cargo can be lost, damaged, or stolen – and this, too, can lead to a sizable financial liability for you. In short, never underestimate just how many ways you can be sued, if you work in the trucking industry.
What’s more, the general public is not always very friendly to truckers (or their employers). When people hear about a truck accident, they tend to assume that the trucker was the party in error, regardless of the actual facts of the case.
This means that juries can be unfriendly to truckers, often willing to give higher awards to plaintiffs, including punitive damages. Even if a case is settled out of court, this bias can still harm you, because settlements tend to be based partially on an estimate of what the plaintiff would have gotten in court.
That said…
How to Protect Your Assets as a Trucker
Why Liability Insurance Isn’t Enough
Truckers are required, both by the state of California and the Federal Motor Carrier Safety Administration, to carry several types of liability insurance.
Although liability insurance is extremely useful, you should not let it lull you into a false sense of security. Insurance limits which are in the hundreds of thousands of dollars may seem high, but is not uncommon in major accidents for medical bills, wrongful death expenses, and other costs to range well into the millions. And you will be on the hook for anything above the insurance limits.
It is also important to remember that insurance carriers – even your own – are not necessarily your friends. They have their own interests, which do not always match with yours, and they will not want to pay any more money than they have to.
That is why if you want to build a really strong asset protection plan, you can’t place all your hopes on your insurance coverage to solve things.
Changing the Structure of Your Business
Fortunately, there are quite a few steps you can take outside of buying insurance.
Asset protection depends a great deal on how your business is structured – and one of the simplest, and most effective, steps you can take is to ensure that it is designed for maximum asset protection.
Many trucking businesses are sole proprietorships. In fact, if you have a business which you have not formally incorporated, then you are already a sole proprietor by default, whether you know it or not.
Sole proprietorships might save you some paperwork in the short term… but they have a big downside, which is that there is no limited liability. If something goes wrong on the road and someone sues you, then they might be able to take almost everything you own.
You can gain the benefits of limited liability by turning your trucking business into a corporation or limited liability company (LLC). This requires you to file some official paperwork and go through a few legal hoops, but once you have done this, your personal assets will be protected.
This means that if someone sues your trucking business, they can only take the assets which are in in the corporation or LLC itself. They won’t be able to take your house, or car, or personal bank account, as long as those assets are in your name.
LLCs have some other benefits, as well, depending on where you establish them.
Moving Jurisdictions
Your physical business may be headquartered in California, but that does not mean you have to keep the business entity in California.
If you have an LLC, then you can move it to another state. Many other states have friendlier asset protection laws than California, and a few – including Nevada and Wyoming – have unique protections for people looking to set up out-of-state LLCs.
If you have a business structure other than an LLC, then you may still move it to a different state, by creating an asset protection trust. Nevada and a few other states have become havens for domestic asset protection trusts.
Placing your business in an asset protection trust or LLC is perfectly legal, as long as you follow the right protocols, and you can do it without having to actually move to another state. If done properly, it will significantly shield your assets from creditors.
If you own a very large trucking business, then it might make sense to go a step further and move your business offshore entirely. There are a few locations, including the Cook Islands in the South Pacific and Nevis in the Caribbean, which allow you to set up a trust or LLC with maximal asset protections, far beyond what you would receive anywhere in the United States.
Offshoring for the purposes of asset protection is legal, as long as you file certain forms with the federal government and pay all the taxes you would have had to pay in the United States. Offshore asset protection should not be confused with offshore tax evasion, which is illegal and will almost certainly get you into major trouble.
Moving a business offshore costs a great deal more than moving it to another state, so this is not a tradeoff which will make sense for everyone. Generally, the wealthier you are and the higher the risk you face, the more likely that offshoring will be right for you.
Importance of Preemptive Asset Protection for a Trucking Company
The Importance of Dissuasion
No asset protection strategy is 100% secure.
However, the more layers of asset protection you place around yourself, the more legal hurdles there will be for anyone who wants to take your money. These asset protection steps send a warning that you are not to be trifled with, and will likely act as dissuasion for anyone trying to sue you.
Remember, most lawsuits end in settlements, so if the person suing you knows they will have to fight harder to gain your assets, they will be likely to settle for less – sometimes much less.
Asset Protection Is the Right Thing to Do for a Trucking Company
Some people feel shy about the prospect of utilizing asset protection strategies. They might feel that people who have nothing to fear have nothing to hide.
This is not always the case. We’ve seen plenty of situations involving truckers and other business owners who did everything right, took all the necessary safety precautions and did all they could to run a good, forthright, and moral business, and still ended up getting sued for millions.
For every case of a “good” creditor and “bad” debtor, there is a case of the opposite. And you have a right and a responsibility – for yourself and for any children or other family members who may depend on your income – to protect your hard-earned assets against these sorts of legal tactics.
Fraudulent Transfer and Planning Ahead
Your assets might not be in any immediate danger yet, but that does not mean you should not start setting up your asset protection plan right away.
In fact, the only time you can effectively plan for asset protection is before you are sued. This is because of the law against fraudulent transfer, which prevents you from moving assets out of your possession in order to avoid debt.
When courts determine whether or not a transfer is fraudulent, timing is one of the most important factors which they will consider. If you set up an asset protection plan after you are sued, or – even worse – after you have a judgment or settlement against you, then it will be easy for the plaintiffs to argue that you moved your assets to avoid financial responsibility.
If you establish your plan early on, before any potential lawsuit is on the horizon, then it will be much stronger. Asset protection is meant to be an inoculation, not a cure.
Getting the Right Help
Setting up these asset protection vehicles can be complex, and if you do not follow the right steps, then your plan might end up being worthless, or even counterproductive.
We recognize that not everyone has the time to thoroughly research these matters, particularly if you are already working hard to support yourself. That is why, if you are looking for help with protecting your assets, you should outsource your efforts to a skilled legal professional.
Our firm has worked across multiple industries, including trucking, to help individuals and businesses set up complex, effective asset protection strategies. We know the rules of the game, and we know how to make things work for ordinary people. If you want to explore your asset protection options, then give us a call today. We would be happy to speak with you.