Asset protection is an important discipline that can contribute to effective estate planning. Everybody can benefit from a little asset protection panning, but especially business owners. That said, it is important to beware that not all asset protection planning is good asset protection planning. Some asset protection schemes are ineffective or borderline illegal.
For this reason, it is important to keep in mind the basic principles of asset protection planning.
The first thing to remember is that asset protection needs to happen before liabilities arise. In this sense, asset protection is meant to be forward-looking rather than remedial. Those who are worried they may someday have a claim against their business or personal assets should engage in asset protection planning now rather than later. Failing to do so may mean facing an accusation of making a fraudulent conveyance.
A second thing to keep in mind about asset protection planning is that there is usually not the question of whether or not it will actually work. Usually, effective asset protection planning involves the use of a number of strategies and tools that, when stacked up, will present a significant obstacle to creditors getting at assets. Judging such plans in terms of whether or not they will work can be misleading, since different states have different ways of dealing with such schemes.
The last point is important to highlight. Because different states treat asset protection schemes differently, plans need to be judged on a state-by-state basis. While some states are more credit friendly, other states may be more favorable to asset protection tactics. Also worth noting, though, is that changing the jurisdiction in which one chooses to do one’s planning doesn’t always lead to more successful protection, since courts may not always comply with the change, depending on the circumstances.
Asset protection planning, when done well, is a great way to protect one’s estate plan. Those who feel they could benefit from such planning do well to work with an experienced attorney.
Source: Forbes, “Asset Protection: Business Owners Beware!,” Steve Parrish, January 23, 2012