Volume 9, Issue 6
The Wealth Advisor
The Shocking Truth About Asset Protection Planning
Some view asset protection planning with a skeptical eye. They believe there is a moral obligation to pay one’s debts. They think that asset protection planning is immoral because it prevents a creditor from collecting on a judgment entered by a court.
The truth is the U.S. justice system is unpredictable. Defendants are faced with ever-expanding theories of liability, being sued just because they appear to have “deep pockets,” and judgments entered against them based on desired outcomes instead of the law.
In this issue you will learn:
What Asset Protection Planning Is, and What It Is Not
The goals of asset protection planning are to provide an incentive for settling a claim, improve your bargaining position, offer options when a claim is asserted, and, ultimately, deter litigation.
On the other hand, asset protection planning is NOT about avoiding taxes, keeping secrets, hiding assets, or defrauding creditors.
Planning Tip: Asset protection planning will not be effective to shield your property from an existing claim. It must be done long before there is even the hint of a claim. An attorney who attempts to help you protect your property after a lawsuit has already been threatened or filed could potentially be subjected to professional misconduct, malpractice, civil liability, or even criminal punishment.
What Traditional Asset Protection Planning Is, and Why It Often Fails
Another common type of traditional asset protection planning is the use of a business entity, such as a corporation, to segregate business assets and liabilities from personal assets and liabilities. While a corporation may shelter personal assets from a lawsuit filed against the corporation, the opposite is not true – if you, as the shareholder of a corporation, are personally sued, your shares of stock in the corporation are not protected from a judgment entered against you. Of course, it is possible that if certain corporate formalities are not observed, then the “corporate veil” may be pierced and the shareholder’s personal assets will become vulnerable to a judgment entered against the corporation.
Finally, many states allow their residents to exempt specific assets from the claims of creditors. This may include protection for property owned jointly by spouses (“tenancy by the entirety” ownership), a primary residence (“protected homestead”), the cash value of life insurance, investments held in a retirement account, and annuities. Nonetheless, these state exemptions are often subject to limitations, such as placing a cap on the value or land area of the protected homestead.
Planning Tip: Despite their limitations, you should not overlook traditional forms of asset protection planning:
When Done Right, Asset Protection Planning is Completely Legal and Ethical
In order to insure that your asset protection plan does not involve any fraudulent activity and will work if it is ever needed, an asset protection attorney will carefully interview you as a potential client to determine if:
Planning Tip: Asset protection planning is a complex area of the law. Your advisors must be knowledgeable about debtor/creditor laws, fraudulent transfers, tax planning, civil litigation, property laws, bankruptcy, and other related areas. Aside from this, your advisors should do their due diligence in vetting you as a potential client and be well-versed in both the design and the defense of asset protection plans.
The Final Truth About Asset Protection Planning
Our office is experienced at creating asset protection plans that are custom-tailored to your family situation and financial status. Please call us if you have any questions about this type of planning and to arrange for an asset protection consultation.
Law Offices of J.R. Hastings • 1003 Third Street, San Rafael, California 94901 • 415-450-6692