Asset protection is a means of keeping property safe from creditors. Creditors could be individuals or entities who win a lawsuit against you, or even those your insolvent business owes money to. Asset protection planning involves taking assets that are subject to creditors’ claims and recharacterizing them as assets that are out of the reach of creditors’ claims. Naturally, this is a murky area, so recharacterization must be done legally and as a preventative measure in order to avoid even more liability.
- Take Preventative Measures
Start your asset protection planning before a claim arises. If you start moving assets after a claim arises, you risk making matters worse. What you do after a claim arises could be viewed as a fraudulent transfer and undone. - Get Insurance
Asset protection planning is not a substitute for insurance. You should include insurance as part of your asset protection plan as a supplement to help you defend potential fraudulent transfer claims. - Place Personal Assets in Trusts and Business Assets in Business Entities
When personal assets are placed into a business entity, the possibility of the entity being pierced by a creditor increases. Piercing an entity would allow creditors to reach through the entity and collect the owner’s personal assets. The place for personal assets is in a trust, out of the hands of business creditors. - Do Not Gift Away Assets You are Trying to Protect
If you put gifts in your will or trust for your children or other prospective heirs, keep in mind that if this was your idea of asset protection, such gifts can easily be set aside as fraudulent transfers. - Offshore Accounts
Despite what you may have read in every John Grisham novel, courts have the power to require debtors to bring money in offshore accounts back to the U.S. through repatriation orders. If a debtor does not comply with a repatriation order, a court may hold a debtor contempt, and in jail, until the money does come back. - Bankruptcy
In 2005, the bankruptcy laws changed. State homestead exemptions were limited, and other new provisions in the bankruptcy code case law make parts of asset protection plans difficult to protect in bankruptcy. - Stay in the Legal Lines
Asset protection planning should be based on the presumption that the planning and its purpose will become known to creditors. Asset protection plans that require secrecy will inevitably face problems.
The Astill Law Office has provided high quality legal services for over 30 years. We specialize in wills, trusts, estate planning, and asset protection. If you have any questions about asset protection or estate planning in general, contact The Astill Law Office at 801-438-8698.