Asset Protection Law
Asset protection law (sometimes also referred to as debtor-creditor law) is a body of statutory laws and court precedents that can be used to protect assets from civil money judgments. Federal and state laws support asset protection planning if done for ethically appropriate purposes and within limits defined by the law. Asset protection planning requires a working knowledge of corporate law, trust law, tax law, bankruptcy law, and contract law, across many different states and jurisdictions.
 By its very nature, asset protection law involves conflicts among the laws of various jurisdictions, including conflicts between state and federal law. Thus, “choice-of-law” becomes a critical sub-category of asset protection law. For example, if a California corporation obtains a judgment against a Nevada resident who owns a home in Texas and an interest in a Delaware limited liability company, which laws control the ability of the California corporation to attach the assets of the debtor? If the debtor files for bankruptcy, how do the federal bankruptcy laws change this analysis? If a government agency also has a claim against the debtor, how does this change the analysis?
Not only must an asset protection attorney be educated on all these various types of laws, but he must have a system in place to continually update his knowledge as the laws continually change. In addition, an asset protection attorney must conduct legal research to verify his conclusions in light of each specific client situation. Sometimes co-counsel is needed to work in a particular state or within a particular specialty.
The internet is inundated with companies that illegally provide legal advice and documentation without a license and without the education, training, or ability to understand all the applicable laws and ramifications for each customer. Even some attorneys get involved in selling one-size-fits-all solutions using standardized documents and an assembly line of paralegals, instead of customizing an asset protection plan for each particular client situation. This is like purchasing medicine from a person who sells the same drug to everyone without a medical examination or proper diagnosis. It is not likely to work and it may make matters much worse.
I am an asset protection attorney, a tax attorney, and a law school professor. I do asset protection planning that is ethical, professional, efficient, thoughtful, and eminently effective. If needed, I can provide ongoing support to back up any plan that I create. I am confident that I can compete on quality and price with any other alternatives that you may find. If you would like a free analysis and proposal for your own situation, please call me or send me an email regarding your circumstances and objectives and I will respond with a detailed recommendation.
In order to create an asset protection plan that is ethically appropriate and legally effective, you should consider the following steps:
- Providing Accurate and Complete Information. First, we need a clear picture as to the assets you are trying to protect, the potential liabilities you are protecting against, and other goals that you may have including family goals, financial goals and estate planning goals.
- Assessment of Risks and Options. Second, we need to ensure that we don’t do anything unethical and that none of the steps we take could be considered to be a fraudulent transfer. If you do your planning well in advance of any potential claims, this is easier to do. If you have already signed on loans, guarantees, or leases, or if you have an imminent potential liability, this becomes more difficult. In some cases, you may be too late for asset protection planning, and you may need to be referred to a bankruptcy attorney or some other kind of specialist.
- Diagnosis and Prescription. Based on your situation, I will send you a proposal of an asset protection plan designed for you. This may involve any of the following tools:
- Marital property agreements. Depending on your marital situation, you may be able to protect assets from the future potential liabilities of one spouse by dividing ownership between spouses and legally defining those assets as separate property. Obviously, this doesn’t fit every situation, but it is one option to consider.
- Irrevocable Trusts. There are an endless variety of irrevocable trusts ranging from a simple irrevocable life insurance trust to a beneficiary controlled discretionary asset protection trust that protects against lawsuits, bankruptcy, divorce, the IRS, and every other conceivable creditor. These trusts can be designed to be inside or outside of your estate, and their income can be included or excluded from your personal income tax returns.
- Limited Partnerships and Limited Liability Companies. Like irrevocable trusts, there are many different types, options and structures of business entities to choose from. These entities can be useless and harmful if they are poorly designed, or they can be impenetrable if they are expertly designed.
- Contracts, agreements, leases, and liens. These legal instruments can be used to protect any type of asset in many different situations. Failure to include these, or to structure them properly, could result in a failure of your asset protection plan.
- Management and Operation. Even if you have the best documents on earth, your asset protection plan will fail if it is not operated and reported properly. Creditors can use the sham transaction theory, the step transaction theory, piercing the corporate veil, reverse piercing of the corporate veil, constructive trust theory, conspiracy to commit fraud, or many other theories to destroy your asset protection plan if you don’t operate things correctly. As part of your asset protection plan, I will consult with you and your CPA to ensure that everything is operated and reported correctly.
Asset Protection Law Best Practices
- The best practice is to implement your plan before the accident or event that gives rise to a lawsuit, before the loan or personal guarantee is signed, and before entering into the contract or partnership that may give rise to a claim. The next best practice is to implement your plan as soon as possible!
- The best practice is to implement your plan for multiple valid purposes in addition to asset protection planning. These may include business purposes, estate planning purposes, tax purposes, and family purposes. The more legitimate these purposes are, and the more they are documented and established, the better the asset protection.
- The best practice is to involve unrelated third parties. If you create a trust, it is best to have at least one reliable, unrelated, independent, trustee. If you create a limited liability company or a lease, lien or contract, it is best to involve at least one reliable, unrelated, independent party. I can help you determine the best parties to use or provide some for you.
- The best practice is to hire a well qualified asset protection attorney who will customize a plan to your specific situation and attend to the subtle details involved in the structuring of legal entities and the drafting of legal documents in order to maximize your asset protection. For example, most general practitioners don’t understand the importance of making an operating agreement qualify as an executory contract, or ensuring that a discretionary trust is not deemed to be subject to an ascertainable standard.
- The best practice is to respect the formalities of each entity, to respect the terms of each contract or agreement, to operate each entity as a separate and distinct entity, and to follow the requirements set forth in the documents and applicable laws.
- The best practice is to have a short review meeting every year to ensure that your plan is operated and reported properly.
In the history of United States law, there has never been a case when a creditor has reached the assets of a properly designed irrevocable discretionary trust when the above practices were followed. Neither has there ever been a case when a creditor has reached the assets of a properly designed limited liability company when these best practices were followed.
Once again, I encourage you to give me a call or send me an email describing your situation so I can give you a free proposal of an asset protection plan designed just for you.
Call now for a free consultation! 801.765.0279 |
