In a recent interview, I revealed the top five things to avoid if you need to plan and protect your financial estate.
When I was asked to comment, I said, “Even though a good asset protection plan should be tailored to a financial situation, there are a few guidelines that help ensure the protection of your financial assets.”
Keeping your financial estate safely out of your name is one of the best ways to protect your assets. I said, “What you don’t own can’t be taken from you.” I am talking about using sophisticated legal structures to own your wealth.
I’m not referring to transferring your life savings to your wife or your uncle. “Sometimes, people might be tempted to title their assets to a spouse or third party if they are in legal trouble. However, this can easily backfire, and the friend or relative you’ve entrusted your assets to could also have financial or legal troubles of their own,” I said.
“Even if you can completely trust your spouse, something unexpected could happen. If they get sued for being in a car accident, then your assets could be up for grabs. Things could also become even more complicated if you decide to divorce after you’ve put your financial estate in your spouse’s name,” I said.
A second principle is to never trust people when it comes to money. I said there are ways of having checks and balances to prevent theft and mismanagement. For example, you can require period accountings. And even though a financial account may not be in your personal name, there can be another person with power to remove the person controlling the account.
I also said, “Both whisky and asset protection get better with age.” What I mean is that legal structures that are set up far in advance of a lawsuit are much stronger than actions taken right before (or during) a lawsuit.
The primary purpose for planning should not be to avoid paying creditors. This may sound counter-intuitive since we are talking about asset protection. But the best asset protection plan also takes into consideration estate planning (documenting who gets what when you pass away), tax planning, and business planning. Otherwise, there is the danger that a court could order that any assets you transferred out of your name need to get returned in order to pay your creditors.
“Fraudulent transfers are more common than people think and come with heavy fines. It simply means transferring assets from your name at a less than reasonable equivalent value in an attempt to defraud the creditor,” I commented.
Another thing to steer clear of is doing anything illegal in protecting your assets.
“Every citizen is entitled to protect their assets legally, however, some people have resorted to using illegal channels and strategies to do so. This could lead to financial and legal troubles.”
Finally, I said, “There’s a rule when it comes to asset protection that ‘Pigs get fat, but hogs get slaughtered. In other words, if your life savings consists of $2 million, don’t put it all in an offshore bank account. That doesn’t leave you any money to live on and it looks inherently unreasonable. It also puts you in the position of possibly getting sued and then having to access the funds for your support. A U.S. court could reason that if you can access the funds for your support, you can access them to pay your creditors.”
Asset protection planning is part art and part science. There is no cookie cutter solution. A good asset protection attorney has experience to know how to best guide you regarding your particular situation.