Asset Protection

What Is Asset Protection Planning In Georgia?

Asset protection planning covers various ways that someone can protect themselves from the effects of taxation, divorce, bankruptcy, court judgments, or any other claims that people or companies may make against their properties.

Why Is It Important To Protect Your Assets?

It is important for people to protect their equity in critical assets like their business, especially if they are in an industry that exposes them to liability claims. We see this in medicine, law, and other professional fields where there is a potential – even a small potential – for a lawsuit or some other major event to occur that puts the security of personal or business assets at stake. Not everyone needs to seriously consider asset protection as an attorney, but for those who have substantial assets and higher risks, there is definitely a need to discuss this sort of protection.

Are Certain Assets Automatically Protected?

Yes, certain assets are almost or automatically protected against judgments in bankruptcy. The most common ones that people encounter are retirement plans. For example, 401(k)s and IRAs are shielded from bankruptcy. That is a government policy to help ensure that people who go through bankruptcy do not get so completely wiped out that they will be forced to live out their remaining years in abject poverty. The government has essentially decided, “These assets can be put aside.” Additionally, some assets are naturally held aside or protected due to the fact that they are left to the benefit of someone else. Assets left in trust to a child or to someone else are, in all likelihood, protected. For the most part, assets in your name and assets that are owned by the business are potentially subject to claims by creditors in bankruptcy. So it is important to look at asset protection for these issues.

Is There A Legal Process To Protect The Unprotected Assets?

The specific legal process depends on what type of asset it is. If there are funds available, we can easily move them into a type of structure that is asset protected and you probably will not need to have a lawyer do a lot of work on this. But for other types of assets – those that we cannot easily get out without setting up some sort of trust or other financial arrangement – it is more important to sit down with your attorney or financial advisor to devise a strategy to shield it from creditors and other entities.

Is It Illegal To Arrange For Asset Protection From Lawsuits And Creditors?

No, under the right circumstances, asset protection is legal and advisable. A reputable asset protection attorney will put together a strategy that is legal and sound.

Asset protection has a bad reputation due to high-profile cases of the wealthy shifting assets overseas to avoid judgments, court orders, and the legitimate claims of spouses for alimony or child support. The illegal type of asset planning often occurs when they did not put a strategy in place before these claims and judgments come into place.

Talking with your asset protection lawyer and financial advising team to design an asset protection strategy is neither morally wrong nor illegal. It is good planning and if done right, will fit within a long-term strategy of estate planning, tax planning, long-term gift planning, and the overall structuring of a strategy that reflect your desires and values.

Does Someone Need Asset Protection If They Are Not A Wealthy Person?

It is important to discuss asset protection regardless of your level of wealth. I think it is always important to know what would happen in a scenario where there was a judgment, a divorce, or where bankruptcy is a potential issue just to know how things may play out. Ultimately, if someone has low assets and does not need that kind of protection, it is probably still worth their time and energy, as you grow and develop and your family changes, to know what that game plan should be.

Does A Revocable Living Trust Provide Sufficient Asset Protection?

In this case, no. The part of the revocable living trust that makes it not great for asset protection is that first word, revocable. If someone were to obtain a judgment against you, the first thing that they would do would be to try to grab any assets that are in your name or that could easily be in your name. What happens with a revocable trust is that the person adding assets in the trust is often the trustee of that trust as well. When a judge sees that you have assets in the trust, and you have the full power to pull those assets out of that trust and put them in your name and pay off the judgment, the judge is likely to order you to do so. Having a revocable trust is better than nothing, but not that much better than nothing. For asset protection, it is important to discuss a more aggressive trust strategy.

When Is The Best Time To Start Asset Protection Planning?

You should start asset protection planning as soon as possible. The best time to establish your asset protection plan is before problems arise. For example, if you are a doctor, before you start taking high risk patients who might sue you; if you are a lawyer, before you take the big case that could result in a malpractice case; a business owner, before you do anything. Hopefully you can establish your asset protection plan before potential liabilities arise, so that you have everything settled and all your ducks are in a row. The goal is to avoid even the appearance of impropriety, especially if a judge were to look at that later on in court.

What Happens If I Wait Until I Actually Need Asset Protection?

The danger in waiting too long – for example, when a lawsuit is filed – is that judges will look at timeline of events. If they see someone clearly moving things around in anticipation of getting a judgment against them, they are likely to hold that party in contempt. Contempt is not something to be viewed lightly, and can range from fines to jail time and asset seizure. The additional danger is that if you declare bankruptcy after having that judgment discharged, a bankruptcy court is going to see evidence of potential fraud and they are likely not going to discharge the debt. You may be held in contempt and be punished for the appearance of impropriety, and still must pay that debt off.

Is It Beneficial To Combine An Estate Plan With Asset Protection Planning?

It is incredibly important and beneficial to combine estate planning with asset protection. If someone is going to embark on an asset protection structure, it needs to be in sync with their estate plan and hopefully put together by the same team. You want them to operate together so that when it comes time to probate the estate and distribute assets, there is no potential legal conflict with the trust. There are so many ways that you can take advantage of good asset protection techniques in your estate plan, so it is important not to let those advantages go to waste.

What Are The Steps Involved In Asset Protection Planning?

The first step is sitting down with your financial advisor and your attorney and figure out what your assets are and what are the best ways to protect them. This can often include transferring assets into a retirement account, setting up a trust, setting up certain corporate structures which allow you to transfer shares, or even having captive insurance. There are any number of options to maximize your asset protection while giving you as much lifetime benefit as possible from your own assets. The final step is going to be that transfer. That process requires a lot of advanced planning, and might take months to get everything in place. Our firm keeps up with the law, making sure that we are taking advantage of all the correct rules, laws, and procedures to maximize your asset protection in the long run.

What Is An Asset Protection Trust?

“Asset protection trust” is a blanket term used to describe a trust where someone puts an asset in a trust for the benefit of someone else, for the purpose of shielding the asset from legal claims. By transferring that longer term benefit to a third party, likely a spouse, a child, another relative or even a charity, the transferor breaks up ownership and it makes it harder for claims to be collected against that trust. Additionally, it gives that benefit of allowing the transferor to use that property during their lifetime.

For example, if you transfer a house to a trust, you may still live in that property, you may still maintain the property, and it might not be any different than it was the day before the transfer. You still get to enjoy it. You might even enjoy it despite having that judgment or having that bankruptcy against you. The same is true for other types of assets that might be transferred to the trust. With good planning, good understanding of state law, and adherence to all the correct rules and procedures, an asset protection trust is actually a great tool.

Will I Lose Control Of My Assets?

Yes, you will lose some degree of control over assets you place in trust. It is important to think about ownership in two different ways. One part of ownership is the ability to use the asset. In that way, an irrevocable trust allows you to maintain this as you can structure it so that you can use the property. The other part of ownership that we look at is the equitable ownership under the law. That is the power to make long term legal changes to the status of an asset. You will likely have to give up part of your equitable ownership of property placed in an asset protection trust.

As part of transferring an asset to an irrevocable trust, you will likely give up the equitable control fo the property to a trustee, who has the power to do some legal transactions on regarding the property, to the extent allowed by the trust.

Are All Asset Protection Trusts Irrevocable?

As a general rule, yes, asset protection trusts are irrevocable. The purpose of the irrevocability is to make sure that the assets cannot be pulled out of the trust by the trustee in order to pay a creditor. The goal of the asset protection is to keep everything in the trust as long as possible until it is time to give it to the beneficiaries listed in the trust.

What Are The Benefits Of Asset Protection In An Estate Plan?

The main benefits we are looking for are a balance of flexibility and safety. When clients come in to discuss asset protection, we want to make sure that they can sleep at night knowing that their critical, core assets are protected from a worst case scenario. We try to do that in a way that allows them to have control as much as possible. The trust might be a small or a big part of that strategy, but ultimately the strategies are designed to retain as much control, and offer as much protection, as possible.

Why Can’t I Just Transfer My Assets To My Spouse Or Children?

With some assets, that is possible to transfer to family members. The danger in making an outright transfer through a spouse or a child is that once you make that transfer, it becomes their asset. In that sense you will no longer have control over those assets. You might as well gift that to a stranger in so much as you will lose control in a different way. Especially if your kids are young, it is particularly risky to allow someone who is too young to have control over a large chunk of family wealth. There is not much you can do to make sure that they use it well or in a way that furthers your interest. Additionally, courts are particularly skeptical of that sort of transfer.

You are going to see that kind of transfer, but a lot of assets that transfer softly can be undone. You are going to see great skepticism or high potential for a contempt order and once again, a judge in bankruptcy court is going to say, “You need to pull that asset out and we will not discharge the debt in this court.” So it is much safer to plan with an organized long term approach to have the appropriate structure in place to protect you, yourself, and protect your kids both from themselves and from the danger of any judgments in the future.

Is Asset Protection Affected If I Am In Litigation?

This is the time where you would want to talk with a professional. It can be effective, but the approach taken is probably going to be a more conservative one in order to make sure that we stay within both the word and the spirit of the law; if the litigation is just beginning, there might be something we can do, so I would definitely urge you to speak with an attorney.

How Can Business Investments Or Real Estate Assets Be Protected?

Businesses are a great concern for asset protection. There are ways to structure business ownership such that the shareholders or members are not personally liable for a judgment against the company. When working with the owners or partners of a company that may face judgments or legal liabilities in the future, we address ways to structure the company’s ownership or change its type of formation in a way that maximizes protection, with minimal disruption.

Real estate is a highly state specific topic, and methods of asset protection are dependent on state real estate laws.

For example, in Florida, the primary residence is often exempt from a bankruptcy judgment. That warrants a very different strategy than a state where real estate is not protected to that degree. We are going to look at the very specific state law where that property is located in making our approach, but as far as investments, securities, and money, we look to position the asset in the most protected place possible. That might be holding some of it in an asset protection trust.

How Important Is Planning For Small Businesses And Professional Practice?

For small businesses and professional practices, asset protection is particularly important as the business takes off and starts to grow. Typically, bigger corporations, bigger entities, they have plans in place already for this issue. The personal assets of the shareholder are generally shielded from legal claims and judgments. But for a small professional practice with a small number of professionals who have their whole livelihood in that practice, it is very important to talk about your asset protection strategies to make sure that one errant lawsuit cannot lead to a complete destruction of the business. Small businesses have such a need because they do not have much protecting their business.

Can I Protect My Retirement Account From Creditors Using Asset Protection Planning?

Yes, to some degree your retirement accounts are already shielded. So any 401(k)s or IRAs, for example, are often shielded from bankruptcy. If you have been making responsible contributions throughout the years and you continue making those contributions even throughout litigation, as long as it is not unusual, those assets are usually shielded from judgments coming from the bankruptcies.

Can I Plan Now To Protect My Children’s Inheritance Through Asset Protection?

Yes, in some ways that is one of the best strategies – to merge your asset protection strategy with your estate planning strategy, while keeping your children in mind. So, an asset protection trust can easily be used for the benefit of one’s children down the line. Certain policies, like insurance structures or business structures, can pass to one’s children with certain protections upon their death, especially in cases where the children are under the age of eighteen. This strategy accomplishes two goals – both protecting your children and their future security, and making your planning easier because you have someone in mind that can directly benefit in the future.

For more information on Irrevocable Asset Protection Trusts, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (404) 939-7562 today.