Why estate planning: In general, there are many reasons why people engage in estate planning. Those include: death time tax mitigation, avoidance of probate, smooth transition of property at death, and making sure the deceased’s dispositive wishes are followed. Asset protection is an additional aspect of estate planning, which safeguards the assets from the risks they would otherwise be subject to.
What is asset protection: The goal of asset protection is generally to deter litigation. At the same time, the plan must be flexible enough to provide options to the client and to change over time in response to changing laws. However, asset protection will not aid the client in the avoidance of taxes and it will not aid the client in the fraudulent hiding of assets.
Timing is crucial. There is no one particular planning tool that will aid every client in protecting the assets. Every situation is unique. The main lesson, however, applies to everyone: planning must be done in advance of litigation. Protecting or transferring assets after there are claims, may expose the client and the attorney to criminal and civil liability.
What one can be sued for: In general, one can never be sure what one will be sued for. If a person is a sole proprietor, then he can be sued for his business. If there is a corporation or an LLC, the corporate veil can be pierced. If one is a general partner, the partnership’s debts may cause personal issues. And generally, there is a “deep pocket syndrome” in America, where lawyers often base their analysis on whether the opposing party can pay a judgment.
Tools of asset protection: Gifting, joint ownership, insurance, corporations, family limited partnerships, domestic trusts, foreign trusts.
Result of asset protection: The client will divest himself of assets and still retain a degree of control over the property. As a result, if / when in the future a cause of action accrues, there will be little incentive for the opposing side to sue, because there will be little or no assets to pursue.
Disclaimer: This article only offers general information. Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions. As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney-client relationship.