Take The Necessary Steps: The Ass(ets) You Save Will Be Your Own
Client: What if I get sued in a medical malpractice case? How do I protect my house?
Attorney: You need an Asset Protection Plan.
Client: But I have a will.
Attorney: A will is not for protection from lawsuits.
Client: Oh, well, I will get around to it at some point.
Attorney: You need to create your Asset Protection Plan before there is a legal crisis.
Our clients often ask about how their assets, such as their homes, can be protected from lawsuits. We say that they should create an Asset Protection Plan which is part of an Estate Plan. Attorneys can do great service to their clients by working with them to create an Estate Plan that maximizes protection of assets, both currently and upon the death of the client. It is often surprising to clients when they learn how a few, small, easy steps can make a big difference in the event of a lawsuit or a divorce. However, it is critical to engage in this planning before there are problems.
Estate Planning is not necessarily Asset Protection Planning although it can include Asset Protection Planning. Effective Asset Protection Planning is always based on the premise that at the time the planning is implemented no known or should-have-known creditors will be left holding the bag. Any plan that includes a fraudulent transfer (one made after the person should have been aware that a potential lawsuit existed) will not provide creditor protection, may cause the recipient of a transfer (such as a spouse or child) to be brought into the legal action, and is more likely to give the creditor access to the transferred assets. If it smells bad, the court will most likely see through that and that fragrance will color all of the court’s decisions – and not in your favor.
Time is your best friend and worst enemy in creating an effective Asset Protection Plan. The greater amount of time that elapses between the transfer and the creditor claim, the better. Patterns of account deposits of paychecks, contributions to 529 accounts for children (to save for college) and donations to charity are not only more difficult for a creditor to attack in whole, but they also add credibility to statements that transfers were made without any intent to defraud.
For many people, no issue is more emotionally charged than ensuring the protection of the home from the reach of creditors. Protecting the home can be harder than protecting liquid assets but there are many everyday steps that can help reduce the likelihood that your home will be up for grabs in a lawsuit.
Lastly, the way assets are held and invested can make a big difference. Many states, like Illinois, have protections in place for life insurance, retirement accounts and annuities. Understanding the protections available with state law and maximizing the use of those protections is a smart and easy way to sleep better at night.
In short, Asset Protection does not have to be complex or convoluted, and it does not require shipping all your assets offshore to an island thousands of miles away. For professionals whose careers place them at higher risk of lawsuits, consulting with an Estate Planning professional knowledgeable about Asset Protection and tax law can make an enormous difference for the financial health of you and your family.
For further information contact us.