Dear Clients and Friends:

In today’s volatile economy, many clients have expressed concerns about how to protect their assets from lawsuits or other potential claims. An Asset Protection Plan may allow you to insulate some if not many, of your assets from certain liabilities that may come up both in business and personally. It is a part of your family estate planning.

Asset Protection Planning is a proactive legal action that may protect your assets from current and future creditors. It is achieved by taking assets that may be subject to creditors’ claims and repositioning ownership to make the asset more difficult to attach and further out of the reach of creditors.

Asset Protection Planning (APP), the planning taken to safeguard one’s assets, has three key elements to it:

  1. Timing of the plan.
  2. Level to which the risk has risen.
  3. Extent of the asset protection plan.

TIMING OF THE PLAN If you put an APP in place when there is no known risk, the probability it will hold at a later date is very high. The probability of the plan working diminishes with each subsequent risk event. It starts with you finding out that some event has created a heightened level of risk. From there it goes to an oral or written communication that notifies you of the risk. Then comes the lawsuit, the trial, the verdict, and the levy or attachment. The longer that you wait to set up protection the more likely it is that your assets will be at risk.

LEVEL TO WHICH THE RISK HAS RISEN – When concerned about an event that might occur, make sure you are carrying the right type and amount of liability insurance, and that it covers the event that you are worried about. If there is risk beyond your insurance coverage, either it is not covered, or the amount involved is beyond your maximum coverage, you then need to add coverage and consider taking actions to protect assets from your personal liability.

EXTENT OF THE PLAN The plan that you establish can protect a single asset, such as your home or other real estate or even cash. In order to separate your assets from liability, they need to be owned by someone other than you. Most of our asset protection plans involve giving to your children, or to your spouse, in a way that you can utilize the assets for their benefit.

With proper planning, you can separate marital assets between husband and wife, recognizing that one spouse’s separate property is NOT responsible for the separate liabilities of the other spouse. Each factual situation should be evaluated to determine if a particular asset is community or separate and how repositioning ownership could bring a level of protection for those assets. Also, recognize that if you separate assets to each spouse, that ownership will apply in the event there is a future dissolution of the marriage.

TOOLS THAT WE USE. We start with a standard estate plan, including revocable trusts and pour-over wills, and then for asset protection, we branch out to separate property trusts for each spouse, and then irrevocable trusts for the beneficiaries of your estate. There are a series of other asset protection tools that can also be utilized to remove assets from your ownership, including Family Limited Liability Companies, which you can control as a Managing Partner, and Qualified Personal Residence Trusts which eventually will give your home to your children. These are commonly used for limiting Estate Tax liability and have the additional impact of asset protection.

If you have a profession that has high liability associated with it, you may consider fairly dividing your assets with your spouse. Real estate developers, lawyers, doctors, and entrepreneurs all have higher than normal liability risk. An Asset Protection Plan is something to consider if you are concerned that even with liability insurance, the risks are so high that it pays to do an Asset Protection Plan.