ASSET PROTECTION FOR THE CLIENT

It should be noted that the objective of asset protection planning is not to stiff legitimate creditors or to do anything morally or ethically wrong! To the contrary, good asset protection planning assumes to a significant degree that the target of the litigation (generically referred to as the “debtor” even if the claim has not yet been litigated or reduced to judgment) will pay all just debts and not attempt to use the fact of the asset protection planning to unfair advantage.

Rather, a main purpose of asset protection planning is to segregate and insulate liabilities away from valuable assets to the greatest extent allowed by applicable law, so as to reduce the debtor’s profile and amenability to lawsuit, as well as to conduct a lawful “asset freeze” by shifting valuable assets to other family members (in trust or otherwise) at a time when the debtor has no existing or foreseeable claims. Asset protection planning is also, to a significant degree, pre-litigation and pre-bankruptcy planning that seeks to maximize the use of exemptions allowed by the state and federal legislatures, and other forms of protecting assets as recognized by established or anticipated law.

But, again, asset protection planning is not meant to cheat legitimate creditors, ex-spouses, business partners, investors, etc., and in court one who attempts to use asset protection for such behavior should expect very liberal pro-creditor rulings.

Morality of Asset Protection Planning – Considers the moral implications of asset protection planning, and gives some scenarios which illustrate the moral dilemmas often encountered in asset protection planning.


Privacy and Asset Protection
Lowering the asset profile of individuals has long been a goal of asset protection planning. While in the past this was done primarily to discourage frivolous lawsuits, it has become much more important today. With identity theft, phishing, pharming, and similar criminal schemes being rampant, it makes sense to keep valuable assets out one’s personal name or from being reported under one’s social security number of other identifier.

By transferring assets into trust or to business entities, the assets are no longer held or reported in an individual person’s name and thus it is much more difficult for criminals to find or access either the account information or the assets themselves. Thus, even if the individual’s identity is compromised and accounts accessed, the assets held in entities should be unaffected and thus available for transfer to the individual’s new accounts to pay bills, etc., while the identify theft matter is being resolved.

Indeed, one of the firm’s partners was the victim of identity theft earlier in the year, and it took nearly a month before a major bank was able to investigate the claim and refund the stolen dollars back into the partner’s account. Fortunately, the partner held most significant assets in the names of other entities that he owned, and was not overly inconvenienced by the event.

Thus, asset protection can sometimes be a planning necessity even when it is not done in contemplation of possible creditors.


Planning Efficacy
It is sometimes difficult to figure out “what works” and “what doesn’t”, and this certainly is not made any easier by the numerous promoters out there who are pitching their “100% bulletproof” pet strategy. According to them, their pet strategy always works and all other promoters’ strategies always fail.

Of course, they can’t all be right, and in truth probably none of them are always going to be 100% right. The reason is that there is so much variation in circumstances of debtors, quality of creditors’ attorneys, experience of judges, prejudices of juries, etc. For the layperson who has come to believe that they need asset protection but are confused by the conflicting claims of success by the promoters, it is difficult to get a handle on what to explore and what to avoid.

One of the most sensible ways to evaluate asset protection planning techniques is by the considering whether the technique has been tested in the courts or whether the technique has been identified by creditors as an asset protection planning.

The term “asset protection planning” is a relatively new characterization dating to the early 1990s. In fact, asset protection planning has been conducted literally for centuries as debtor-creditor law. There is thus a large body of law that deals with certain types of planning techniques, such as the use of spendthrift trusts to protect assets from the creditors of beneficiaries, or corporations to shield investors from the claims against the entity.

One would think that planners would research the techniques that work, and those that fail, and avoid the latter. Unfortunately, a recurring theme in asset protection planning is that bad techniques are perpetually recycled and sold as “bulletproof” to the masses. Also, certain techniques that have repeatedly failed in the courts continue to be advanced by planners who have staked their reputation on them in the hopes that by the sheer unwillingness to try something different their pet theory might someday win one and they will be vindicated.

At any rate, dividing techniques into those that have proven to work in the courts and those that have failed in the courts is quite sensible and should be done. However, some asset protection planners are bright “think outside the box” types, and they are always coming up with new and innovative strategies to try to stay ahead of the creditors’ strategies for piercing asset protection plans. Judging the effectiveness of these untested techniques is much more difficult – and sometimes impossible because there isn’t enough law in a given area for anybody to have anything like a solid idea as to how the courts might finally rule on something.

If a technique is known to creditors, presumably they will be creating their own strategies for defeating the technique. Thus, strategies that are known to creditors are inherently more dangerous than strategies that are not. Conversely, if a strategy is not known to creditors, it means that each creditor that addresses an unknown technique will not have the benefit of other creditors’ experience and may not even recognize it as an asset protection technique. Thus, strategies that are not known to creditors should be favored over those that are known.

Obviously, the most dangerous strategies are those that have been shown to fail in court. The next most dangerous strategies are those that creditors are aware of, but have not yet been tested in the courts. There are two reasons for this: First, if creditors know about a strategy then you can bet that their very bright attorneys are devising ways to defeat it. Second, if a court ruling goes against one debtor’s strategy, the creditors will use that to leverage the other courts to unwind the strategy.

The safest strategies are those that have been tested in court and are known to succeed. The next safest strategies are those on the so-called “innovative frontier”, being strategies so novel that creditors have not yet identified them as an asset protection strategy. These strategies give a debtor the significant edge of the creditor having to try to figure out the strategy while in litigation.

We would like to consult with you and offer a variety of options for you based on your particular circumstances and needs. Call us with any of your questions. We’d like to sit down with you at no cost and discuss your interests in asset protection.

Mark Tippins
Attorney at Law
987 Drew Lane • Auburn AL, 36830
Phone: (334) 821-3670 • Fax: (334) 821-3671
E-Mail: mtippins@bellsouth.net

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