ASSET PROTECTION PLANNING: THINGS TO CONSIDER

With news headlines announcing multi-million dollar jury awards in lawsuits, it is easy to understand why asset protection strategies might be needed.

Individuals may be interested in asset protection planning to protect against

• unknown future creditors,
• current creditors,
• potential ex-spouses, and
• the IRS and other taxing authorities.

Those protecting their assets from exposure to liabilities should consider taking advantage of a number of tools:

• Purchase appropriate kinds and amounts of liability insurance.
• Make gifts to spouses or family members.
• Create business entities that segregate personal assets from business liabilities.
• Put money into assets that may be wholly or partly exempt from the claims of creditors, including
• home,
• pensions,
• IRAs,
• life insurance, and
• annuities.
• Create and fund asset protection trusts (APTs)

APTs are a key tool to consider as part of an overall asset protection plan.  While such trusts have been available for a relatively short time, they have advantages over other techniques. 

APTs are not appropriate for every person who wants to protect assets from creditors, because

• APTs are not available in every state,
• APTs may be ineffective against certain kinds of creditors, such as the IRS or a potential ex-spouse, and
• APTs require giving up control of the assets transferred.

All asset protection techniques run the risk of violating fraudulent transfer rules.  If a person makes transfers of assets to cheat a known creditor, that person has made a fraudulent transfer.  If a court finds a person has made a fraudulent transfer, that court has the power to reverse the transfer and make the asset reachable by the transferor’s creditor.

Since the rules surrounding asset protection are state-specific and fact-specific, it is wise to involve a client’s professional advisors during the process.  The skills of the client’s attorney, CPA, insurance professional and financial professional may all be required to formulate a comprehensive asset protection strategy.

I hope this information is helpful.

Please contact the Law Offices of William H. Copperthwaite Jr., L.L.C. if you have any questions.

Please note that the information contained in this summary is intended for informational purposes only and is not to be considered tax/legal advice. For specific advice, please contact the Law Offices of William H. Copperthwaite Jr., L.L.C.