ASSET PROTECTION FAQ

Litigation in our society has reached a point where it now appears on the cover of major magazines. Not only are doctors and other professionals being sued, but business owners, real estate investors, and corporate directors and officers are at substantial risk for litigation and liability claims.  With the onslaught of litigation and unpredictable judges and juries, preserving one’s wealth is a major concern and should be an integral aspect of the estate planning process.  Years ago, asset protection planning was a new concept that was not well understood and many attorneys viewed it with suspicion and as possibly unethical.  Today, we know that is no longer the case.  Over the past decade, asset protection planning has emerged as a new and challenging area of practice.  The American Bar Association has even developed an Asset Protection Committee.  The Florida Bar has annual seminars on asset protection techniques.  An asset protection plan requires expertise in property law, domestic and international tax law, estate planning, trusts and estates, bankruptcy and debtor-creditor law.  We have developed an expertise in these areas.  With proper asset protection planning, your assets can be safeguarded from potential litigation and creditor claims.

WHAT IS ASSET PROTECTION?
Asset protection is a form of risk management planning that is designed as a preventative measure to protect a client’s assets from creditors.  Asset protection planning is the legal and ethical process of reviewing a client’s financial holdings and restructuring those holdings to take advantage of various techniques and legal exemptions that seek to place those assets beyond the reach of potential creditors.  In addition to insulating assets from creditor attack, asset protection planning can allow you to negotiate a favorable settlement with creditors from a position of strength.

Asset protection planning commences with an analysis of each of your assets.  We evaluate the current and potential liabilities for each asset. Depending on your situation, various techniques can be utilized including (i) statutorily exempted plans including homestead, pensions, and life insurance and annuity products, (ii) United States domiciled plans which include limited partnerships, limited liability companies, corporations and domestic trusts and (iii) offshore trusts.

WHO NEEDS ASSET PROTECTION?
Anyone who is a professional, business owner, corporate director or officer with liability exposure or anyone who has accumulated assets (real estate, stocks, bonds and other investments) is a target and should review their holdings from the perspective of “What will happen if I get sued?” 

WHY IS ASSET PROTECTION NECESSARY?
Litigation in our nation has exploded within the past few years and the number of lawsuits being filed continues at a staggering rate.  Essentially, no business owner, professional or corporate director or officer is exempt from the increasing risk of being sued.  Planning for a potential lawsuit has become a critical step in the business and estate planning process.  Asset protection planning has become a necessity.

IS ASSET PROTECTION ILLEGAL, IMMORAL, OR UNETHICAL?
No.  Asset protection planning is not a vehicle for evading taxes.  It does not involve hiding assets or engaging in any illegal activities.  It is recognized by the American and Florida Bar Associations. 

WHY DON'T I JUST GIVE ALL MY ASSETS TO A RELATIVE TO HOLD FOR ME?
For example, a debtor who sells all of his assets to his brother for $1 or gives all of his assets to his spouse will likely see the transfer challenged as a fraudulent transfer. If it is determined that the transfer was made to defeat creditors either because the debtor was made insolvent by the transfer or because the debtor actually intended to defraud his creditors, courts can set aside the transaction.  The person holding the assets may then be required to give them up to the creditor.  This concept of fraudulent transfers also applies to transfers into various forms of joint ownership including tenants by the entirety.  If such a transfer leaves the debtor without any assets to pay his liabilities, the transfer into joint names may very well be a fraudulent transfer.

WILL A LIMITED PARTNERSHIP OR LIMITED LIABILITY COMPANY PROTECT MY ASSETS?
Assets transferred to a limited partnership or a multi-member LLC (which are not fraudulent transfers) may be protected from the creditors’ claims against the owners of the entity.  The creditors of a partner or a  member of an LLC are only entitled to a charging order.  A charging order entitles the creditor to distributions made in respect of that ownership interest, but does not allow the creditor to take control of the ownership interest.  The I.R.S. will treat the creditor who has a charging order as the owner of the interest for federal income tax purposes.  Since the creditors cannot compel a distribution and may receive taxable income as a result of the charging order, interests in limited partnerships and limited liability companies are generally treated by creditors’ attorneys as being undesirable tainted assets.

WHY DON'T I JUST BUY INSURANCE?
The first defense against liability is generally adequate insurance.  However, insurance policies often do not cover you for punitive damages or intentional wrongdoing.  In addition, the potential lawsuit can involve an amount that exceeds your insurance coverage or the insurance carrier may deny coverage.  Further, the cost of adequate insurance may be prohibitive.

WHY WOULD I WANT AN OFFSHORE TRUST?
By utilizing an offshore trust you can place your assets outside of the reach of U.S. creditors.  There are a number of countries that have very debtor friendly laws, including the Cook Islands, Nevis, Bahamas, Belize, Gibraltar and Mauritius to name a few.  Generally, these jurisdictions do not honor judgments obtained in the United States and have a very short statute of limitations within which to attack the trust for fraudulent transfers, usually two years or less.  Belize has essentially repealed the law of fraudulent transfers. U.S. persons establishing Belize trusts are protected under Belize law from the moment they are created. 

WILL I LOSE CONTROL OF MY ASSETS IF I ESTABLISH AN OFFSHORE TRUST?
No.  We utilize a variety of techniques where you can maintain direct control of your assets and keep them in the United States under the umbrella of an offshore trust.

WHAT ARE THE TAX CONSEQUENCES OF THE OFFSHORE TRUST?
The offshore trust is tax neutral.  That means your U.S. income, estate and gift tax liabilities remain unchanged.  The offshore trust is established in a tax-free jurisdiction so there are no foreign taxes applicable to the trust.

DO OFFSHORE TRUSTS PROVIDE PRIVACY?
Confidentiality or privacy (not secrecy), although desired, is not required for an offshore trust to succeed in preventing a creditor from reaching the assets owned by the trust.  The offshore trust may provide confidentiality as to the existence of the trust, the provisions of the trust, the assets in the trust and their location and other matters.  However, the offshore trust and its details will probably be discovered in the event of a lawsuit. 

WHAT IS INTERNATIONAL INTEGRATED ESTATE PLANNING?
In our experience, it is best to include asset protection planning as part of the overall estate planning for our clients.  Our offshore trusts are designed to integrate with revocable trusts prepared under state law in the United States.

IS BANKRUPTCY RECOMMENDED?
A well designed asset protection plan should not include bankruptcy as an element. In fact, we counsel our clients to avoid bankruptcy.

WHAT SETS US APART?
Singer & Associates has developed an expertise in the various areas of law that are a prerequisite for conducting effective asset protection planning.  Our attorneys have over 35 years of experience in this area.  They will conduct a thorough analysis of each of your assets, your liabilities, status of your estate planning and overall family goals.  Based on the foregoing, an effective plan can be structured.

HOW DO I GET STARTED WITH PROTECTING MY ASSETS?
Contact the Law Office of Singer & Associates for a professional analysis of your assets and potential liabilities.

 

Disclaimer: The information provided by Singer and Associates herein is not legal advice.  You should consult with a lawyer who could evaluate your situation and advise you as to the proper course of action to take.  The hiring of a lawyer is an important decision that should not be based solely upon advertisements.  Before you decide, ask us to send you free written information about our qualifications and experience.