In our previous post, we began discussing the importance of asset protection planning.
Asset protection addresses several types of wealth preservation strategies in estate planning, including long-term care costs, liabilities connected to lawsuits, estate and gift taxes, managing a spendthrift son or daughter, or losses connected to poor investments. Proactively addressing these types of concerns in estate planning goes a long way in protecting your wealth so that you are able to pass on as much as possible.
Being proactive and avoiding procrastination is very important when it comes to asset protection planning, since it is usually much harder to deal with claims or liabilities after they have arisen. Asset protection planning done after such liabilities arise may lead to fraudulent transfer actions. Fraudulent transfer is a civil cause of action brought by creditors or bankruptcy trustees involving a situation in which the debtor donated assets to an asset protection scheme, leaving no assets with which to pay creditors.
In fraudulent transfer actions, a transfer is considered fraudulent if it takes place within a time frame specified under the relevant statute. That time frame can include transfers made before the asset protection scheme was set up. The time frame is dictated by the Bankruptcy Code and the Uniform Fraudulent Transfer Act, the latter of which has been adopted by a majority of the states. Needless to say, it is best to start doing asset protection planning before any such claims arise.
Planning for asset protection after a claim already exists can result in further problems. Debtors and those who assisted the debtor may end up being responsible for the creditor's attorney fees, and if a bankruptcy is involved, the debtor may not be able to discharge his or her debt.
In our next post, we'll continue with our final installment on this topic.
Source: Forbes, "Ten Rules For Asset Protection Planning," Jay Adkinsson, 13 July 2011.