This approach is about creating the appropriate business structures that enable you to quarantine your assets from risks, while still enjoying the benefits of those assets.
This might at first seem counterintuitive. After all, the point of wealth creation is to accumulate assets, but the risk that comes with owning assets is that they can be taken away from you, perhaps by creditors, perhaps as a result of an unforeseeable lawsuit, and, particularly in the case of high- profile people, perhaps through opportunistic and predatory legal action. So one of the first objectives of asset protection is to create an ownership structure in which you literally own nothing, yet control everything and can still easily access the assets and the income they generate. This can be achieved through the use of various business structures.
Gearing against your assets is another strategy that can be very effectively employed to achieve the objective of owning nothing. It can make some people nervous, especially if they are uncomfortable with using debt, but it can achieve two important outcomes. First, it enables you to enjoy the benefits of your assets without exposing them to risk. Second, by borrowing against your assets you release your equity, which you can then use to invest in more assets (but not in your own name).
Let me give you an example of how this can work. Say you purchase a $1 million home, unencumbered. You don’t owe anything on the house, which is a great feeling and a fantastic achievement, but you have a $1 million asset fully exposed. If you were to be sued, the house could be sold to release your equity – so potentially you lose your home and your $1 million. An effective alternative would be to buy your home with a very large mortgage against it, say $900,000. In this scenario, you only have $100,000 equity in the home, which means only $100,000 exposed to any potential risk – and the costs involved in getting at your $100,000 are likely to make a lawsuit unattractive. By releasing your $900,000 equity, you can then use it to invest in other assets through structures that make those investments for your benefit, but not in your name.
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