“Asset protection” is a term used to describe legal planning that shields your assets from the unanticipated claims of creditors. Asset protection planning employs any number of techniques in isolation or in conjunction to achieve this objective. Embedded within this definition are a number of terms and principles that you should be aware of:
Legal Planning: We are talking about a type of planning that you pursue with the assistance of a competent lawyer. If you are not a surgeon, you do not perform surgery on yourself, nor do you have your CPA or stock broker perform surgery on you either. Just as well, the planning we are doing here is legal and conducted in a manner intended to withstand scrutiny. We are not trying to hide money under the mattress.
Shielding Your Assets: Asset protection planning is a process by which we create barriers separating your assets from the claims of unanticipated creditors. Erecting these barriers requires that we abide by two important principles:
- The way in which your assets are titled (e.g., in your name, or in the name of a trust or other entity) establishes the rights and remedies that creditors have in relation to your assets. In other words, with asset protection planning, you get to choose the rules that your creditors must follow if they stand any chance of reaching your assets.
- You cannot get blood out of a stone. In other words, a creditor cannot collect from you what you do not own. Likewise, as long as you have not engaged in a fraudulent transfer (we will learn about this in the next chapter), a creditor cannot go back in time to seize assets that you owned in the past but no longer own.
Your Assets: In asset protection planning, our objective is to help you with your assets, not someone else’s assets. If they are not your assets, then no amount of asset protection planning that I do for you is going to protect assets owned by somebody else. As we are about to explore, asset protection planning goes to the heart of this point. A key part of what we do is look to entrust your assets with someone else, the idea being that, if it is not your property, then your creditors cannot take away that property.
Unanticipated Claims of Creditors: If you have a creditor knocking on your door and demanding payment on a judgment, you cannot possibly enjoy the same advantages as someone who has no known creditors issues at the time an asset protection plan is first implemented. If you co-signed a loan with your business partners, and that real estate project you sponsored has gone into bankruptcy, the law is designed to hold you accountable for that debt to the extent of your available assets. We are going to learn in the next chapter how transfers intended to deny an existing creditor the ability to reach your assets can get you into real trouble and blow up your asset protection plan. The point here is that we are focusing on techniques intended to protect your assets from those things that you cannot anticipate arising in the future.