What is Asset Protection?
Legal asset protection planning is implementing a series of strategies that protect your assets from divorce, lawsuits, and claims against your business and/or estate. Asset planning, when it is performed correctly cannot guarantee that you will keep all your assets in all cases; but instead making it difficult for future potential creditors to collect judgments against you. It greatly reduces the chance of getting sued in the first place and it increases your bargaining power.
Timing for Planning
For everything there is a season, a time for every activity under heaven, a time to protect your assets and a time when to let them go.
More than anything else timing will effect your ability to protect your assets, and unfortunately, time is not usually on your side. You must begin with asset protection in mind.
- Asset protection begins with an early assessment and regular review of your liabilities.
- Your mitigation plan should be part of your business plan, it should be in place before you are in business.
- Asset protection will not work if you are about to or have been sued.
- Your asset protection planning should, be continuously reviewed, particularly when your business adds new activities.
- Asset planning may include creating entities that will segregate and limit the spread of Liability.
- All business ventures should be thought through to the conclusion before starting.
Too frequently a potential client for asset protection has a looming liability that will be particularly devastating to their business, family and estate. It has been my unfortunate duty to deliver news that they have waited too long.
When a potential client has timely begun their planning, they ask how they should go about effectively protecting their business, family, and estate? It is my opinion, they should start with protecting their assets by obtaining appropriate and adequate insurance.
If you are planning to do something with an unknown risk, use an entity and insurance to separate that risk from your larger estate.
Those who have failed to plan at the beginning, can start planning and understanding that this planning is for the future. As soon as the problem is resolved, a person may begin to implement their asset protection planning.
The state of California and the federal government do not permit what is referred to as a fraudulent transfer. California has a statute effective since 2007 called the Uniform Fraudulent Transfer Act. This act is in CCC§ § 3439-3439.12. In California, the period of when estate planning can be undone is seven (7) years.
Legal asset protection planning strategies include:
- Third-Party Irrevocable Trusts
- Family Limited Partnership or FLP
- Limited Liability Company or LLC
- Corporations, both domestic and foreign
- Business and Premises liability Insurance
- Off-Shore Trusts1
1 We do not recommend this planning option often, because it is an IRS red flag and an excellent way to have the IRS audit your tax returns. They dislike this technique so much that they enacted the Foreign Account Tax Compliance Act (FATCA).
