By: Dean Konstantine
It could mean jail time if your not careful. Asset protection is not a legal term it can not be found in any US codes or in any state statutes. There are no real courses taught in law school which teach asset protection and although there are some continuing education course given to the legal and estate planning community the teachers of the course have little experience in court defending or perusing assets.
All this is changing, in fact, the Real Property, Probate and Trust Section of the American Bar Association has formed an Asset Protection Subcommittee. Within the last 10 years, close to 20 countries and four states have passed some form of asset protection trust legislation.
Today, many estate planning attorneys and other wealth planners who have at least a working knowledge of the concepts involved in asset protection planning are of the view that it is a necessary component of planning. Many planners feel that the failure to advise a client about asset protection planning options may be grounds for a claim of malpractice.
There are many people out there that profess to have bullet proof strategies to protect assets through a verity of schemes most it not all of them do little to really protect assets when it gets right down to it.
To understand asset protect you must understand it requires a two prong approach, first part of any asst protection plan must include legal risk management which is a strategy for minimizing legal risk by diverting potential problems and secondly, should risk management fail a plan for judgment shielding of assets is necessary.
You must understand there are 2 schools of thought when it comes to asset protection.
1.) Is it morally right to protect ones assets from creditors or potential creditors?
Here is the legal problem, if you have a very good bullet proof asset protection program and one day you end up legally intoxicated behind the wheel of your auto and you get in an accident whereby you kill an innocent motorist, should your assets be free from harm? This is a question the courts and judges will consider when looking at your asset protection program and whether or not to dismantle your program to make it available to satisfy legal judgments.
2.) Should all assets be protected regardless of circumstance or action of the asset’s owner?
It is a popular belief people who practice asset protection strategies are guilty because they would not need to get involved in asset protection if they did not want to shield the bulk of their assets from civil action or potential judgments from creditors, unless they were not planning to do something wrong. This belief can be found in many court rooms from judges to juries and everyone in between. A natural reaction to a person going to great lengths to protect his/her assets must be guilty of something. And of course they would not be here in court if they did not do something to bring themselves here.
Understanding this will help you chart the right asset protection plan that will work better for your circumstances. If you are planning to hide your assets and then run to Bankruptcy court to BK the judgment think again. The new bankruptcy bill would destroy the ability of “high earner” individuals to file a Chapter 7 bankruptcy and extinguish debt without sacrificing significant income. The bill also limits the homestead exemption to $125,000 in bankruptcy for many debtors, and contains a 10-year look-back provision in “fraudulent transfer” asset protection trust situations. If you’re hiding your assets, don’t be surprised if you’re ordered to bring your assets out of hiding or be held in contempt of court whereby, you will be jailed until you agree to comply.
The easiest way to protect your assets is of course to divert the liability form you to an insurance company. Most people do this in the form of home owners and auto insurance. Many do not think about liability insurance to protect them from their negligent acts or actions. This of course is very expensive to fund depending on the coverage you feel you need.
First it is important to understand that nothing is 100% protected except and this is a big but, your retirement income from a legally recognized ERISA retirement plan (Employee Retirement Income Security Act), of course there are exceptions to the exceptions, they are the IRS placing a tax lien on your retirement and a QDRO (Qualified Domestic Relation Order) which allows for spousal, child and other dependant support.
Additionally, you can purchase your primary home in a state where homestead laws allow you to protect more of your real state assets than other states do. But there is a new exception to this rule in bankruptcy court. A notable feature of the new Bankruptcy law involves the homestead protection available in many states. Florida, Texas, and Iowa, for example, protect unlimited amounts of homestead value. Homestead would still be protected to the extent of existing state law if it has been owned and lived in for at least 3 years and 4 months.
Finally life insurance and annuity income is exempt from judgments in most states, but there is a considerable amount of information which needs to be considered while planning your protection program.
To protect your financial future you must take this subject very seriously and keep in mind that it takes a team of experts to build the right plan. To learn more about this subject I would strongly suggest you email me at drkonstantine@gmail.com or call me at 760.961.2332
Also, keep this in mind work with organizations which are leaning on politicians to keep individual rights and protection in place or to strengthen them.