Asset Protection Strategies Require Full Disclosure and Careful Planning

When engaging in asset protection strategies, clients and their attorneys must be very careful not to act in a manner that defrauds creditors. Fraudulent attempts to protect assets not only derailed protection strategies entirely, but attorneys can lose their license to practice law for being involved. The key to proper and effective asset protection is that a client must fully disclose his personal and financial situations to his lawyer so that the lawyer can provide proper guidance.

Recently, the Iowa Supreme Court considered sanctions against a lawyer for allegedly committing an unethical act in helping the client protect assets by placing them in a Domestic Asset Protection Trust. Fortunately for the attorney, the Court ruled that he did not commit an ethical violation in assisting a client with asset transfers that the court determined to be fraudulent and which were done to defraud creditors.

This was an ugly case about an unwitting attorney and a horrible horrific incident in which his client was involved. A simple statement of the facts follows:
In January, 2003, RH shot and killed his neighbor, TL. RH was ultimately convicted of manslaughter. TL’s widow and TL’s estate sued RH and obtained a large judgment against him for wrongful death (similar to the O.J. Simpson case). After the shooting, but prior to conviction and a civil judgment against him, RH and his wife went to their lawyer seeking asset protection strategies. The lawyer assisted them in various transfers using revocable trusts and an irrevocable trust. The attorney was not aware of the conviction or the civil case, and had no idea that RH and his wife were trying to hide assets from the judgment creditors. If the lawyer had known, things might have been done very differently. For example, he should might have refused to do some of the asset protection transfers based on attorney ethical standards.

A district court held that the transfers were fraudulent, so TL’s estate was able to get some financial satisfaction. TL’s widow was understandably upset and filed a complaint against the attorney for assisting RH and his wife. The Iowa Supreme Court concluded that if an attorney knowingly assists a client in committing fraud, he could, and should, be sanctioned. However, in this instance, RH made misrepresentations to his attorney, who had reasonably believed what was said, and therefore concluded that the asset protection transfers were legitimate and could be made.

The lesson for all is this: Asset Protection is a valid estate planning strategy. However, strategies fail if the attorney is not aware of the all the client’s circumstances and/or the client isn’t completely honest with the attorney. The attorney can face sanctions if he allows or assists a client in defrauding creditors. Great care must be taken in this area of the law. It’s not something that can be undertaken independent of your attorney. Work on asset protection strategies with an attorney who is well versed in the law, and make full disclosures about your circumstances..

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.