skip to Main Content

Asset Protection and Estate Planning

I tell my clients the best asset protection planning is done in the context of tax and estate planning. In other words, the planning should be viable on more than one front. Not just for asset protection. Not just for tax planning. And not just for estate planning. If the planning intersects two of the three, it is probably a good plan.

Asset protection is like dealing with a bank. When you don’t need a loan, you probably qualify. When you need a loan, you probably don’t qualify. If you have creditors chasing you or a lawsuit pending, it’s usually too late. The best time to do asset protection is when you don’t need it.

Here’s a great post from Jay Adkisson:

The problem is that so much asset protection is poorly or wrongly done, and so the courts (or Congress in the case of 548(e)) have to put their foot down against those who attempt to game the system so that they don’t really take chips off the table but still attempt to avoid payment of their debts.

So, for instance, somebody having no creditors or liabilities could give all but $1 to their kids’ trust, or to pay down the house, or into some protected retirement account, etc. The next day, they are involved in an auto accident. In such a situation, the courts will uphold the trust since the debtor actually took his chips off the table before the liability arose.

The problem with so many asset protection structures is that they only give the appearance of the debtor taking the chips off the table without actually doing so, i.e., the debtor retains ultimate control over the assets by hook or by crook. In such a case, it should come as no surprise that the courts are willing to cut through the legal niceties to make those assets available for creditors — in fact, they wouldn’t be doing their job if it were otherwise.

So — and this is a practice tip — asset protection planning needs to be done in a form and fashion so that it will not appear to the courts that the debtor has tried to “game the system”, i.e., appear to dispose of asset while actually retaining control of them.

Back To Top