It should be considered as a component of comprehensive financial planning
Asset protection is a method of managing legal risks and protecting assets from attachment due to a lawsuit. Because lawsuits have gotten out of control in some states, asset protection planning has become even more critical for those individuals concerned about potential lawsuits.
Although professionals and business owners in certain fields, like medicine and rental real estate, have special concerns about asset protection planning, the topic is important to all individuals today in our litigious society. The goals of asset protection planning generally are to: promote settlement of creditor suits; protect assets from seizure; and protect the credit and reputation of clients.
As a sub-set of risk management, asset protection planning should be considered whenever a financial advisor does comprehensive financial planning.
Moral and Ethical Issues
Before getting involved in asset protection planning, a financial advisor should ask certain questions. Is it something that I should be involved with? Does this planning harm someone else? What is and is not appropriate?
These questions should be considered and, when dealing with clients, discussed with the client's attorney before getting involved in asset protection planning.
Who's involved in asset protection planning?
Anyone who is interested in protecting assets should seek the advice of a local state law attorney with expertise in the following areas:
o Debtor/creditor,
o Bankruptcy,
o Conflict of laws,
o Estate planning.
The financial advisor also should be involved since risk management is part of comprehensive financial planning. Asset protection is just one aspect of financial, estate and business planning.
Many techniques and strategies involved in comprehensive financial planning will have an asset protection component. Examples include family limited partnerships, certain trusts and limited liability corporations.
Fraudulent Transfers
All states have laws that provide remedies to creditors when the debtor no longer owns the asset. These laws are aimed at gifts or transfers by a debtor for less than fair market value and with an intent to "hinder, delay or defraud" the creditor.
These laws can result in the creditor obtaining the assets that were transferred if action is pursued within a certain time frame, such as four years. Because of these fraudulent transfer laws, it is difficult for individuals to plan if claims against him/her already exist.
Such transfers in defraud of creditors in some states can subject the individual to criminal penalties. A local attorney can provide advice on when gifting or transfers are appropriate.
Common Sense Planning
In many ways, good asset protection planning is just plain common sense. To avoid problems, one should avoid risks, have liability coverage and plan early. Liability coverages include:
o Professional/errors and omissions,
o Umbrella,
o Medical/LTC,
o Business,
o Officers/directors,
o Personal property,
