Tailoring asset protection plans to individual needs is a job that only a skilled and experienced asset protection attorney should attempt, if for no other reason than that the benefits of the strategies employed may be lost if they fail to comply with all applicable state, federal and international laws, as well as any precedents that may have been set by previous court actions.
While high-risk high-net worth individuals are obvious candidates for for asset protection planning, in practice just about anyone with assets to lose can benefit from the lawsuit-deterrent effect of asset protection planning. This is particularly true of middle-class Americans, who are finding that even a modest lawsuit has the potential to wipe out a lifetime of accumulated wealth.
Regardless of the net-worth involved, there are a number of critical considerations of which both the asset protection attorney and client should be cognizant. Most critically important is the timing of funding the legal tools with assets. The law is very strict on this point.
Funding may occur only when there are no creditor claims pending, threatened or expected. To do otherwise may invite a charge of “fraudulent conveyance,” which would result in transactions being overturned—and even more dire consequences, such as prosecution.
Also critically important is that the Settlor of an Asset Protection Trust (APT) remain solvent after funding, with the resources to pay all reasonably anticipated debt from resources outside the Trust. The courts may not look favorably on those partnerships and trusts that are established otherwise.
Considerable estate planning expertise may also be required in the preparation of asset protection plans, since there typically is much linkage with traditional estate planning and retirement tools, such as irrevocable trusts, pensions, life insurance programs, annuities, wills or revocable living trusts.
So there is no misunderstanding, what asset protection planning doesn’t do—and shouldn’t do—is conceal assets from legitimate creditors or hide income from the Internal Revenue Service. Unfortunately, some legal beagles and their clients may attempt to do just that. The government has a word for that type of planning, and it’s not asset protection. It’s fraud.
Unlike schemes that promise huge tax benefits, legitimate asset protection plans are always income tax neutral. Their sole objective is to protect assets from abusive litigation—not cheat the government by evading income taxes.
The best advice that can be offered to someone being pitched on the tax-saving benefits of asset protection is to hold on to your wallet and head for the door as fast as you can. Any so-called asset protection plan that purports to save on income taxes is most certainly questionable if not illegal.
As might be expected, some jurists take a dim view off asset protection—not because it’s unethical, because it’s not; and not because it’s illegal, because it’s not. Most of whatever criticism there is comes from those who know little or nothing about this relatively new field of law, and much of what is said to be criticism emanates mostly from trial lawyers whose ox may be gored by legitimate asset protection planning.
A typical argument by trial attorneys with vested interests in the financial outcome, is that asset protection is a wily way of circumventing the law to avoid claims of future creditors. If by circumventing the law they mean crafting existing law in ways that create a level playing field where plaintiffs and their predator attorneys no longer have a decidedly unfair advantage, then asset protection protection attorneys doubtlessly would plead “guilty, as charged.”
The fact is that many of the victims in today’s civil justice system are the defendants who need protecting and not the plaintiffs who claim to be victims, without responsibility for their own choice and often irresponsible acts.
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