Greenspoon Marder International Wealth & Asset Planning: Asset Protection Planning: Dispelling the Myths
International Wealth & Asset Planning Blog
Apr 12, 2019
Edward Brown, Esq.
As professionals and clients become more educated through symposiums, articles and other publications, the general public is becoming more in tune to the debunking of the old days’ misperceptions that asset protection planning somehow implicates: (1) the engaging in a “fraudulent” transfer of assets to far away locations at a time that a creditor is about to descend; (2) the hiding of assets in secret locations and under fictitious owners’ names; and (3) income tax dodging and not reporting to the IRS the existence of taxable income or reportable assets.
Today, 17 states have passed asset protection trust legislation that
specifically allows for protective trusts to be created, following the lead of
many offshore jurisdictions. This spreading trend demonstrates that this
type of planning is becoming well accepted, if not mainstream, which attracts a
climbing number of would-be victims to engage in proactive asset protection
planning. In essence, the key factual components to such planning today
involves: (1) the repositioning of how assets are owned in advance of the
threat of a lawsuit, which has proven to work well to protect assets, even with
real estate; (2) the fact that clients have become comfortable with gifting a
desired level of assets to a trust that is managed by an independent trustee
who must act in the best interests of the client as a beneficiary (if that is
part of the client’s chosen design of the trust), meaning the client can still
financially benefit from the trust’s assets; and (3) the fact that the client can
continue to manage (control) the assets (for example (i) as the manager of an
LLC that owns the assets, although the trust owns the LLC, and (ii) as a powerholder over trust assets to
redirect where the assets are distributed).
In essence, the designing of structures that import the laws of more
protective offshore or onshore jurisdictions has allowed these more protective
laws to shield assets from enforcement of actions that arise, for example, in
less protective jurisdictions.
It should be
emphasized however that retaining any of the controls mentioned above could
weaken the asset protection. For
example, if you serve as a general partner or manager of an entity (e.g.,
limited partnership, LLC) you should consider discussing with the trustee the
wisdom of gifting those entities to other family-members and/or stepping down
with regard to having such management control.
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