An effective Asset Protection Planning and Strategy Starts At Home.

Does the term “Asset Protection” conjure visions of a remote Caribbean Island or the Swiss Alps? This is not the place to begin an asset protection analysis. We suggest that you begin by consulting your estate and financial planning professionals to design or review your estate plan and, during that process, cast a critical eye to your family’s exposure to claims.

We all need asset protection planning. There are millions of lawsuits filed in the United States each year. Our society is blessed with a system that allows us to resolve these conflicts in a court system in a civil manner. Imperfections in that same system of jurisprudence lead many to believe that it is a curse.

Accordingly, the asset protection analysis begins by looking at our client’s exposure to the myriad of claims that are pursued against families or businesses in similar circumstances. Obviously, a surgeon or owner of a business that stores and uses toxic chemicals to manufacture its products has greater exposure to claims than a teacher or consultant.

Most Americans protect their families and businesses from claims by purchasing insurance coverage. A review and analysis of that insurance is important to determine proper coverage and policy limits for the client’s exposure. In some cases, insurance coverage is not available or the cost is prohibitive.

An Estate and Financial Plan which incorporates an effective Asset Protection strategy has the following characteristics

  • A Plan: The most important characteristic is that there is a logical and user-friendly plan in place. Potential third-party claims have been considered, and contingencies discussed. Even our most experienced and savvy clients react emotionally when their family or business interests are threatened. We find that if they can turn to a plan it is very useful.
  • Level the Playing Field: A good plan will immediately defuse the claimant’s momentum, and deliver a clear message that they are going to face a trench-by-trench defense.
  • Incentive for Settlement: A good plan will encourage settlement by negotiations or mediation at a fraction of the costs and attorneys’ fees required to pursue a case in the court system.
  • Legally Sound: Finally, the plan must be legally sound. That is, it must stand up to scrutiny by the claimants or their advisors if we “lay it on the table.”

What Asset Protection Planning is Not:

Asset protection planning is not (1) a means to defraud creditors, (2) tax evasion, or (3) a method of hiding assets. We are talking about legitimate and legal estate and financial planning, not money laundering or tax evasion.

Common Asset Protection Considerations:

How are the client’s assets titled? For example, a single person, or a person who owns a home in their individual name and gets married without transferring the home to the joint names of the husband and wife, has no protection from a creditor who wants to recover that person’s equity in the home. On the other hand, if that same home is held by a husband and wife as tenants-by-the-entireties, the equity in their home is fully protected against claims against only one of them. Certain personal property and bank accounts can be held by tenants-by-the-entireties and be afforded the same protection.

If our client owns a business, what legal entity has been chosen? The most vulnerable is a sole proprietorship, the next, a general partnership.  For years corporations (both “C”and “S”) were the preferred business entity because they limit the owner’s exposure to third-party claims. Over the last decade, limited partnerships and limited liability companies have become popular. Choice of the best entity can only be made after analysis of our client’s specific circumstances.

A fraudulent conveyance analysis must be made in order to assure the client that the plan will be effective. This area of the law is fraught with examples of people attempting to abuse the process. For example, we will hear someone state, “I don’t own anything, all of my assets are in my wife’s name.” A creditor can challenge this type of transfer under the Uniform Fraudulent Conveyance Act and have it declared void.

Offshore Trusts:

Clients who are in a high-risk business and are vulnerable to claims that either would not be covered by insurance or are potentially above policy limits, may want to consider an offshore trust as part of their estate and financial plan. Of course, in order to make effective use of an offshore trust for asset protection, planning must be done prior to any threat of litigation. Generally, the offshore trust that we recommend is (1) tax neutral, (2) allows our clients to keep their assets in the US, (3) provides maximum privacy, but not secrecy, (4) is in a jurisdiction that has a very short statute of limitations for fraudulent conveyance claims, and (5) the government of the trust jurisdiction will defend against any attack of the trust.

In summary, because none of us are exempt from third-party claims, an asset protection analysis is an essential component of any estate and financial planning model.