Learning Center
Plans & pricing Sign in
Sign Out

Asset Protection


This is an example of asset protection. This document is useful for conducting asset protection.

More Info
									1. What client might need this technique?                partner is normally liable for partnership         Offshore entities to own property:
                                                         debts.                                              U.S. courts have considerable power
     In our litigious society, it is hard to identify    Forms        of     marital       property         to enable creditors to successfully
     a client who could not use some asset                 ownership: If spouses hold property               attach and liquidate a debtor’s
     protection planning. However, it is certain           as the separate property of one spouse,           property. Even though some courts
     that any business owner, anyone with a                creditors of the other spouse have very           might exceed their authority, that is
     substantial estate and professionals subject          limited rights against the separate               always a concern to the asset
     to malpractice claims should investigate              property spouse. Likewise, spouses                protection planner. Therefore, some
     asset protection planning.                            holding property as tenants by the                planners use offshore jurisdictions
                                                           entireties, where such ownership is               with debtor friendly rules to protect
2. How does asset protection planning work?                allowed, can frustrate a creditor’s               their client’s property from being used
                                                           attempt to acquire the property in                to satisfy a judgment. Many of the
   In general, asset protection planning attempts          satisfaction of a liability of one of the         offshore jurisdictions that are used
   to organize the ownership and location of a             spouses for which the other bears no              have developed local laws that make a
   client’s property in such a manner as to make           responsibility.                                   U.S. creditor’s attempts to enforce a
   it as difficult as possible for a creditor to         Trusts to own property: There is a                 judgment very expensive and time
   acquire the property in satisfaction of a               doctrine termed “spendthrift” used in             consuming.
   judgment against the client. It must be                 the administration of a trust.           If    Statutory protections: Most states
   remembered, that the techniques discussed               someone other than the beneficiary                have statutory protections that limit a
   following are not necessarily 100%                      transfers property to a properly                  creditor’s rights to seize certain types
   successful, but “reasonable” settlements are            designed trust for the benefit of a               of property, even though held in the
   frequently obtained. The particular techniques          beneficiary,      creditors      of    the        name of the debtor.          The most
   that planners use vary, but the “general                beneficiary are not able to use the               common exemptions are:
   techniques” are:                                        assets of the trust to satisfy liabilities     Homestead exemption: Generally, a
                                                           of the beneficiary. This is a frequently          dollar amount of a personal residence
        Family Limited Partnerships or                    used technique for leaving property to            of the debtor is protected from the
         Limited Liability Companies: The                  children who lack the financial ability           claims of creditors, some states even
         primary benefit of these forms of                 to manage money. Some states are                  protect the entire residence, without
         ownership of a client’s property is the           enacting      statutes      that    allow         regard to value.
         limitation on the rights of a creditor            beneficiaries to transfer property to a       Wage exemptions:           States generally
         suing a partner or member (“partner”),            trust in which they are one of the            allow only a limited amount of
         “outside protection,” in that a creditor is       beneficiaries and still allow protection      compensation to be protected from
         not able to attach partnership assets             from creditors. These new laws are            garnishment by a creditor.
         from events occurring at the partner              untested and there is disagreement as          Annuity exemptions: Some states
         level. Also, a creditor of the partnership        to whether they will be successful in             exempt annuity payments from
         may not attach assets of the partners.            protecting      donor-debtors        from         creditor claims.
         Special planning is needed for the                creditors.                                     Qualified plans: There is federal
         general partner because a general
           protection of a qualified plan’s assets                                                          ESTATE PLANNING LIBRARY
           from claims by creditors of the             4. What does the planner do in these
           employee beneficiary. However, this            engagements?                                            Number Three
           protection does not extend to federal
           tax claims.                                      The      planner      reviews the    client’s
          Individual retirement accounts:                  circumstance, determines the potential for
           Most states provide a degree, or                 liability, the client’s outlook toward
           complete, protection from creditor               offshore, as opposed to “onshore,” planning
           claims for the debtor’s IRA accounts,            and recommends the technique that seems
           although, there is no protection from            to best suit the client’s needs.        Once       Asset Protection
           federal tax claims.                              decided, the attorney executes the                         '
          Life insurance cash value: Some                  documents needed to implement the
           jurisdictions provide considerable               planning decided upon. This is a balancing
           protection for the cash value of life            technique        that      requires   careful
           insurance owned by the debtor.                   communication between the planner and the
                                                            client. Using separate property ownership
                                                                                                                  AN OVERVIEW
3. What if a law suit is pending?                           as the technique, in some circumstances,
                                                            may be a foolhardy choice by the client.
   If a lawsuit is pending, transferring property           Likewise, using an offshore jurisdiction
   to protect it from a successful lawsuit will not         may be overkill in other situations. The
   be effective. There is a concept in the law              planner and the client must balance the risks          Compliments of
   termed       a    “fraudulent     conveyance.”           against the costs of the plan and the client       The Weidenfeld Law Firm
   Essentially, a fraudulent conveyance is any              must decide.                                         888 17th Street, N.W.
   transfer which:                                                                                                    Suite 900
                                                       5. What are the client’s responsibilities?               Washington, DC 20006
          Is intended to interfere with the ability
           of a particular creditor to collect on         Primarily, the client must provide a forthright         Tel: 202-785-2143
           any successful lawsuit, or                     disclosure of any existing potential lawsuits.          Fax: 202-452-8938
          Makes the person making the transfer           After that, it is the typical relationship  
           insolvent after the transfer.                  between an attorney.

     If either of these conditions are present, a
     court may require that the recipient of the
     transferred property return the property so
     that the creditor has access to satisfy the
     creditor’s judgment.

To top