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 www.weidenfeldlaw.com
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.