I’ve heard a lot of people talking about “Asset Protection,” but I’m not really sure I understand what that term really means. It seems that different people have different ideas about what constitutes asset protection, as well as the steps one should take to protect assets.
Due to the plethora of misinformation about Asset Protection which is circulating on the Internet and elsewhere, any responsible discussion of Asset Protection must necessarily begin with a brief discussion of what Asset Protection is not. Asset Protection is not waiting until a lawsuit is filed to structure one’s legal affairs. Likewise, Asset Protection is not divesting oneself of assets after entry of an adverse court judgment. These, and other similar tactics are nothing more than fraud. By way of analogy, hiding income from taxing authorities after the income has been earned is a form of fraud known as tax evasion. Just as it is illegal to hide income from taxing authorities, it is likewise illegal to hide assets from judgment creditors.
However, just as there is no legal obligation to earn a certain amount of income (or to acquire wealth in any particular form or fashion), and just as it is legal (and even encouraged by the IRS) to take advantage of all appropriate tax deductions, entrepreneurs (as well as all others who have done nothing wrong) are under no legal obligation to put (or leave) all of their financial assets unprotected, so as to make it easy for a future judgment creditor to collect, should there be a liability-causing event.
Thus, properly understood, Asset Protection planning – that is, pre-litigation planning – is a service that lawyers provide to their smart, responsible clients, just as tax planning is a service that accountants and other tax professionals provide to their clients.
Now that we understand that Pre-Litigation Planning is a more accurate and descriptive term for what is often referred to as Asset Protection, let us look at some of the basics of Pre-Litigation Planning, a.k.a. Asset Protection.
An Internet search of the term “Asset Protection,” as well as the almost ubiquitous Asset Protection “seminars” or “workshops” that are often sold for hundreds (if not thousands) of dollars, might lead a casual observer to wonder if Asset Protection is just another term for a Trust, Living Trust, Revocable Trust, Irrevocable Trust, Family Trust, Offshore Trust, Asset Protection Trust, or some other type of Trust. In fact, I recently heard a fellow attorney introduce himself as (I’ll paraphrase here), “a Trusts and Estates attorney who also handles Asset Protection work.”
Although it is true that some (but certainly not all!) Trusts may have some Asset Protection qualities or attributes, there are many other tools in the Asset Protection toolbox that can be better used to accomplish clients’ asset protection objectives. As the old saying goes, “to a hammer, everything looks like a nail.” Likewise to many estate planning (and other) attorneys, every asset protection client’s case looks like a Trust.
So, what exactly is Asset Protection? Asset Protection is nothing more than the proper use of legal strategies and tools to structure one’s legal affairs long before any potential lawsuits arise. Asset Protection strategies can be of benefit, for example, to business owners, real estate investors, as well as families. Texas families – that is, husbands and wives – are often at greater risk of loss (based on a percentage of net worth) than are other types of asset protection clients, but that’s a different article.
Given what we have just learned, it is not surprising that sound Asset Protection strategies can be found in legal codes that deal with topics as diverse as business entities; real property law; family law; and yes, even trust and estate law. Trusts are sometimes an appropriate Asset Protection tool, but let us not forget that not all potential legal risk comes in the form of a nail.
For more information on this topic, click here to: Contact Lapin Law Offices
Lapin Law Offices, P.C.
5001 Spring Valley Road, Suite 400 East
Post Office Box 802401
Dallas, Texas 75380
Disclaimer: The information contained in this publication is provided by Lapin Law Offices, P.C., for informational purposes only and, shall not constitute legal advice or create an attorney-client relationship. The laws and interpretation of laws discussed herein may not accurately reflect the law in the reader’s jurisdiction. Do not rely on the information contained in this publication for any purpose. If you have a specific legal question, please consult with an attorney in your jurisdiction who is competent to assist you.