Asset Protection Planning

Asset protection planning is essential in today’s litigation oriented society. While being involved in a law suit is not quite as certain as death and taxes, it is as foreseeable as being involved in a traffic accident or a failed business deal. Obtaining insurance against such threats presents a porous defense. If you have assets sufficient to require estate planning to avoid taxes after your death, then you have assets sufficient to require planning to protect them from lawsuits before your death.

Asset protection planning can utilize a wide range of tools. The usefulness of each tool is largely affected by individual circumstances. Some asset protection devices, such as interlocking corporations, can have adverse tax consequences, and others such as off-shore trusts may seem too exotic. In general, the more complex the device, the more effective the protection. However, this is dependent on individual circumstances. The simplest asset protection measure may be all the protection one needs.

An intra-family transfer is the simplest of all asset protection devices. One simply conveys title to an asset, any asset, to one’s spouse, children, or other family member. It need not even involve a family member. It is presumed that one will want to keep wealth within one’s family, but one can just as easily transfer title of an asset to a business partner or other trusted friend.

The transfer can involve any type of asset. It is not unusual for a professional to place the family home in the name of his or her spouse. The rationale for this transfer can apply to any other asset as well, such as securities, partnership interests, and even art work and antiques. Any asset with significant value can be transferred to a spouse or relative to insulate it from the claims of potential creditors.

An intra-family transfer is not a fail-safe system of asset protection. Any transfer specifically intended to hinder or delay a known creditor can be set aside. Conceptually, it must be done only when the seas are calm, and there are no pirates on the horizon.

A transfer to a spouse risks complications in the event of a divorce. If the property is gifted to a spouse, it can be excluded from the marital property subject to division. Similarly, a transfer to a son or daughter may create problems later when they decide to sell a family heirloom to buy Madonna’s greatest-hits video collection. Transferring ownership also means transferring control.

Lastly, any transfer to a relative may be subject to gift taxation. It is important to consider this element in light of overall estate planning goals. If executed properly, an asset protection transfer to a spouse or child can coincide with estate planning goals. One can protect an asset from creditors during one’s life and protect it from tax collectors after one’s death.

While an intra-family transfer is not the most effective asset protection tool, it can be the least complicated and least expensive. Even if it is not total protection, it is measurably better than no protection at all. Everyone with any assets worth protecting should consider this simple measure of protection. Whether it be the family homestead or a family heirloom, an intra-family transfer can keep them safe from future creditors.