Asset Protection Planning

Asset Protection Overview

     In recent years, the threat of lawsuits, business reversals, divorce and actions by government regulators has made every business owner, property owner and professional acutely aware of the need to create some form of asset protection. Now, the typical asset protection plan is designed to accommodate the needs of those who have accumulated some equity in a home or other real estate, those who own a successful business, and others who are trying to preserve a nest egg for their children's education or their own retirement.

Who Needs Asset Protection

     Doctors, lawyers and other professionals face constant exposure to malpractice lawsuits and jury awards in these cases often reach staggering proportions. These professionals often find that adequate liability coverage is so restricted that the policy has little value. As a result, every professional finds that he is quite literally, betting the house on a successful outcome with every patient or client who comes in the door.

     Business owners as well as officers and directors are all common targets of litigation these days. In addition to negligence and products liability lawsuits, claims by customers, suppliers, employees, lenders and business competitors can easily lead to financial devastation. Also, litigation with government agencies such as the IRS or the EPA can tie up a business and its assets for years. Win or lose, these types of cases will inevitably drain a company and its owners of all financial resources.

     Anyone who owns rental or commercial property is also a common target for a lawsuit. As a "Deep Pocket" defendant, a property owner is a virtual magnet for never-ending barrage of frivolous claims. And if a tragedy should occur and some tenants are seriously injured, potential liability in the millions of dollars can easily exceed the amount of any insurance coverage.

     Real-estate developers and builders must deal with potential liability to buyers and users of a property. In California, liability for latent (unseen) defects in a project lasts for 10 years. If that's not bad enough, liability to lender for one bad deal can wipe out all of the equity in other projects that has been accumulated over a lifetime.

     Even those who are not engaged in business, those who work for someone else or are retired will find that an Asset Protection Plan is an essential tool in their overall financial plan. Significant illnesses or injuries may create large uninsured liabilities to doctors and hospitals. An auto accident which injures several people can involve damages which exceed the amount of insurance coverage.

     The logical conclusion from all these scenarios is that anyone who does not take the necessary steps to protect his accumulated assets is brazenly flirting with financial disaster. Top

The Objective of an Asset Protection Plan

     Sound Legal Foundation: Any asset protection plan must be based upon a sound legal foundation of established principals of law. An appropriate plan does not involve hiding or concealing assets or otherwise attempting to defraud creditors. A properly constructed asset protection plan allows a client to achieve his objectives while fully and truthfully disclosing all of his financial circumstances.

     Discouraging Litigation: An asset protection plan is designed to discourage a potential lawsuit before it begins. In the ordinary course of litigation, the attorney for the plaintiff will want to make sure that sufficient assets of the defendant can be reached if the litigation is successful. This is especially true when the attorney is working for a contingent fee. Accordingly, prior to commencing a lawsuit, the plaintiff's attorney will perform a financial investigation of the target defendant's assets, seeking to locate any real estate, bank accounts or other valuable property. If the defendant has substantial, reachable assets the lawsuit will go forward. If the investigation reveals that the defendant's assets are not in a form that can be seized, only the most self destructive plaintiff would incur the expense of proceeding with the case.

Ease of Operation: An asset protection plan should be easy and convenient for the client to use and understand. After the plan has been established, the client should be able to deal with his property without difficult or burdensome restrictions.

No Loss of Control: An asset protection plan must allow the client to maintain continued control and enjoyment over his property. A plan that requires a client to place his valuable assets under the exclusive direction and management of a third party will not be appealing to most sophisticated clients.

Consistent with Estate Plan: If the client has an existing state plan, such as a will or a Living Trust, the asset protection plan must be consistent with these arrangements. If the client has not yet created any estate planning documents, the asset protection plan must be designed to minimize or avoid estate taxes, avoid a costly and time consuming probate procedure and pass the clients property in accordance with his ultimate wishes.

Protection of Family Assets: Above all else, the asset protection plan must accomplish its primary purpose of insulating and preserving family assets from any kind of attack.