Following are questions and answers
concerning Asset Protection arranged in what we believe is a
logical sequence. Additional questions and answers are added
regularly, so please visit our site often. Please feel free
to make copies for non-commercial purposes.
Q:
What is the primary goal of an asset protection plan?
A:
The primary goal is to reduce risk by discouraging a plaintiff’s
lawyer from wanting to file suit against the target on a contingency
basis by:
Making it extremely difficult for the plaintiff’s lawyer to locate significant assets, and
Convincing the plaintiff’s attorney that any assets that are located, will be either difficult or
impossible to reach for collection purposes.
Q:
What are some of the basic asset protection concepts?
A:
Assets should be isolated or insulated by conveying them to different entities whenever appropriate. These entities
may include corporations, limited liability companies (LLCs) and family limited partnerships. Family limited partnerships are
especially effective because, absent a fraudulent conveyance, a creditor of a partner has no legal claim to property of the
partnership.
General partnerships, tenancy in common ownership and handshakes should be avoided. These can lead to unlimited
liability for the debts of the business or negligent acts of a co-owner.
Observe corporate formalities if using a corporation or LLC.
Avoid financial guarantees for others in any form. This includes loans, leases and other obligations.
Do not let excessive cash accumulate in your corporation or LLC.
Avoid oral contracts of any type. Use only written contracts.
Do not make your spouse an officer or director of a corporation used for business unless absolutely necessary.
Do not title your assets directly in your name. Remain stealth.
Purchase insurance from a competent broker. Have your lawyer, or a competent insurance consultant review the policies.
Transfer risk whenever possible.
Transfer risk to others by means of broad form indemnification agreements when possible.
Always utilize a Buy-Sell Agreement if you co-own a business with one or more persons.
Always obtain competent legal advice before making important business decisions.
Remember, while Revocable Living Trusts are excellent estate planning tools, they provide no asset protection except
for eliminating or reducing probate fees and estate taxes.
Q:
What is a fraudulent conveyance or transfer of assets?
A:
A conveyance or transfer of an asset is subject to being set aside as
a fraudulent conveyance in at least four circumstances:
The conveyance was made with the actual intention to delay, hinder or defraud a creditor;
The conveyance was not made for reasonable consideration or value and the person making the conveyance was insolvent
before the transfer was made, or becomes insolvent as a result of the transfer;
The transfer was made without the receipt of reasonable
consideration and the person making the conveyance
knew or should have known that his or her remaining
financial resources would be insufficient to pay future
liabilities; or
The transfer was made without the receipt of reasonable
consideration and the person making the transfer
continues to operate the business with financial resources
that are reasonably insufficient.
Q:
What are the common indicators of possible fraud?
A:
Badges of fraud include but are not limited to the following:
The transfer takes place immediately before a lawsuit is threatened or filed.
The person making the transfer cannot be located.
The transfer was made to a close friend, partner or family member.
The transfer was made immediately after a large debt was incurred.
An unreasonably small amount of consideration is received.
A large debt is incurred to a close friend, partner or family member.
The concealment that a large debt or transfer of an asset has taken place.
Q:
Are IRA and Keogh plans exempt from seizure resulting from a
judgment?
A:
Yes, but only to the extent of reasonable retirement needs. This
means a court must decide the issue.
Q:
Are pension and profit sharing plans formed under ERISA exempt
from seizure resulting from a judgment?
