Tips for Asset Protection Planning
Asset protection planning is a must if you are looking to secure your wealth, so that you can fall back on it during bad times. It is in the area of the debtor’s responsibilities, in terms of the creditor-debtor rule. Creditors have to come up with techniques and strategies for collection, while debtors have to develop plans and implement strategies which can help protect their wealth from creditors. However, in doing this, debtors have to make sure that the processes they adopt do not implicate them in bankruptcy fraud or contempt. Here are four rules you should follow when you create a plan to protect your assets:
1. Have a Plan in Place Before a Claim Comes Up
The timing of the steps you take to protect your assets can have a huge impact on whether it is effective. The right time to develop and implement a plan is before the claims arise. You can even create a plan to protect wealth in small portions, as they come in.
Once a liability claim arises, there is little you do can secure your wealth. In many cases, trying to protect assets after a claim comes up can be pointless under the fraudulent transfer rule. Planning asset protection at this stage can even make matters worse.
A judge can make the debtor and the person who assisted in the transfer of wealth fraudulently, liable for the attorney fees the creditor has to pay. The law can even prevent the debtor from qualifying for discharge in bankruptcy. In a less serious situation, the judge will merely unwind the fraudulent transfer, putting the debtor in the same place as before he made the move.
2. Make the Distinction Between Business and Personal Assets
Before doing asset protection planning, you should make the distinction between what qualifies as business assets, and what as personal assets. LLCs, partnerships and corporations are business entities which act as commercial operation vehicles. Do not place personal assets in such business entities. If creditors find this suspicious, the likelihood of a creditor looking into other aspects of the business increase. A good option for placing personal assets is a trust that is well-funded and drafted. Assets in such trusts are generally protected by a strong set of laws.
3. Estate & Tax Planning and Asset Protection Planning are not Always Compatible
In most cases, estate planning and asset protection planning can go together. However, sometimes, they may not be compatible, in which case, the ideas for one will not be right for the other. For instance, gifting (to prospective hires and children) is done quite commonly in estate planning. But in asset protection planning it can cause a lot of problems, among which one is that it is easy to categorize it as a fraudulent transfer. Another example – homestead exemptions can be quite a powerful tool in asset protection planning, but it can trap the house value in your estate.
4. Know Where Your Assets are Being Held
Sometimes, asset protection plans can become very complicated, making it difficult to keep track of how an asset is being held or how they were transferred. Find ways to remember these details, as you will have to provide them if you go for a debtor’s exam or a deposition. In case you are unable to provide all the information required of you, the courts can become suspicious. You can avoid this situation if you go for a simple asset protection plan – like funding a trust which is irrevocable.
In connection with requests to Karlsberg International Insurance Company (KIIC) to obtain information on the insurance products and services being offered by KIIC, understand that KIIC Representatives are not tax or legal advisors and do not provide advice with respect to any insurance plan, policy, or trust structure. Consult with your own tax and legal advisors.