Asset protection is designed to help individuals or businesses protect their property from potential creditors. The need for asset protection may arise for those who are involved in professions that carry legal risks such as doctors, dentists, accountants and other professionals. The need may also arise when holding certain investments that require protection from a lawsuit such as owning rental properties or any business that serves the general public. Additionally, an asset protection plan may be needed for wealthy individuals who may be subject to false or frivolous claims by litigious individuals looking for a free ride. In any scenario, it is important that the asset protection plan be specifically designed with the particular needs of the client in mind.
Estate Planning and Business Entity Formations
A basic component of asset protection and preservation is to have an estate plan which includes a will, a trust, and a durable power of attorney. For individuals who operate a business, exposure to personal liability will be further limited by forming a corporation, limited liability company or partnership. Having proper and adequate insurance, such as an umbrella policy, is also part of a prudent asset protection plan.
More sophisticated estate planning techniques – including the use of Grantor Retained Annuity Trusts, Charitable Remainder Trusts, and Irrevocable Life Insurance Trusts – provide even further asset protection for your benefit and the benefit of your children. Irrevocable trusts protect assets that have been completely dedicated or allocated to third parties because the assets no longer belong to you, and creditors cannot legally acquire your former assets that have been transferred to third persons.
Protected Types of Assets
Certain assets are more protected against creditor attacks than other assets. Moving assets into more protected categories can be an effective strategy as part of an overall plan. For example, funds that are invested in retirement and pension plans are generally off-limits to creditors. Assets should be placed into “protected categories” like these.
Preventing an Asset Protection Plan from Failing
For business owners, there are three basic ways for an asset protection plan to fail: claims based on piercing the corporate veil (PCV), reverse piercing the corporate veil claims (reverse PCV), and fraudulent transfers. To evade PCV or reverse PCV claims, a fundamental asset protection strategy is to avoid mingling by keeping business assets and liabilities separate from personal assets and liabilities.
The most common claims are based on fraudulent transfer theories. State and federal statutes exist to thwart asset protection schemes deemed “fraudulent conveyances.” Simply transferring assets without due consideration in efforts to elude creditors is a “fraudulent conveyance” that will not hold up in court. For this reason, it is important to enter into an asset protection plan before any creditors claims arise. This is the only way to ensure that an asset protection strategy is not deemed to be a fraudulent transfer.
Knowledge of Bankruptcy Law
Having an awareness of bankruptcy law for both individuals and businesses is essential because sometimes bankruptcy laws can be used as a shield to protect personal and business assets. Having an affiliation with The Bankruptcy Group allows NewPoint Law Group, LLP, to provide a seamless integration in matters of bankruptcy law as an asset protection strategy.
How We Can Help
There is no such thing as a one-size-fits-all asset protection plan. Each asset protection plan is unique to fit the particular circumstances and needs of each individual and business, which involves mixing and matching various techniques to achieve the best result. A solid asset protection plan is like a ship with many independent and separate compartments. If there is a leak in the hull of the ship, it will be contained to a small portion of the hull, which will continue to sail, and be more or less unaffected by the leak. Persons who have no asset protection plan are like a ship with no compartments in the hull. One small leak can sink the ship.
The key to successful asset protection is advance proactive planning. If you are interested in obtaining more information, please contact NewPoint Law Group, LLP for a free consultation by calling 800-358-0305 or message us online. We can work with you to achieve your goals.