Friday, April 2, 2010
In today's difficult economic climate, protection of your assets is a legitimate, and important concern. Asset Protection seminars, and "one-size-fits-all" schemes are the current hot topic. We see this in two areas; most frequently these days, for "seniors" who may be facing or contemplating expensive medical and Long Term Care concerns, and clients who seek protection from their creditors, actual and potential. Buyer beware! There are many out there who are very anxious to take your hard-earned dollars and convert them into expensive, inflexible and often useless annuities. "Offshore Trusts" and "Family Limited Partnerships" can also be the subject of abuse in this area. I am not saying that these aren't useful tools when used for the right reason, in the correct context, with your full knowledge of the risks and rewards involved. But they are just tools and tools can be used or they can be abused.
They are just tools . . . . and tools can be abusedAsset Protection is not some kind of "magic" shield that attorneys or planners can concoct or create. Rather, Asset Protection is really about a pragmatic, common-sense approach to asset ownership and management, coupled with an understanding of the Laws applicable to debtors and creditors in the place you live and/or own the assets.
Most importantly, Effective Asset Protection Planning must be proactive. We refer to it as "planning" for good reason. To be effective, Asset Protection Strategies must be implemented before a liability arises. It is virtually impossible to "dodge" an existing creditor.
Asset Protection Strategies must be implemented before a liability arisesAll states have Laws that will set aside or negate any transfers of assets "with the intent to hinder known creditors." Known as "fraudulent conveyance statutes," these laws effectively thwart after-the-fact attempts to implement Asset Protection Strategies.
There are also other Federal and State Laws that impact creditor relationships, such as Bankruptcy law and the Social Security laws relating to Medicaid. These laws impose a specific time period before the liability event arises that the transfer or planning strategy must have occurred. In practical effect, those creditors are able to "look back" from a few months, to several years.
Creditor relationships arise when a loan transaction takes place, when a contractual or negligence - based liability arises, and sometimes when seeking eligibility for certain state and federal entitlement programs such as Medicaid. While there may be some "grey" area over when such liability actually arises, the best approach to Asset Protection planning is to do it when a transaction occurs, well before any liability has arisen.
Good Asset Protection strategies involve an overall planning process and almost always lend themselves well to Estate Planning and/or Business Planning. These strategies are recommended in such instances as purchasing real property, opening bank and brokerage accounts, purchasing other financial assets, purchasing life insurance, structuring and funding "qualified retirement plans" and IRA's, starting a business and planning for farm and business succession.
Asset Protection and other concerns may sometimes be at odds with each other. It is often the case that a client will choose certain risks over Asset Protection strategies, due to cost or inflexibility of such strategies, or simply personal preference. These strategies should always be considered and discussed when any of the above mentioned activities occur.