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Rules to Follow for Asset Protection Planning

Asset protection is simply the measures you take to prevent potential creditors from seizing your assets, including the equity in your home, bank accounts, stocks, vehicles, other real estate and any other valuable asset. The following are a few rules to follow for protecting your assets should a creditor sue you and obtain a judgment or if you find yourself having to file for bankruptcy:

  1. Do not attempt to hide your assets. If a creditor obtains a judgment against you and attempts to go after your personal assets, or if you file for bankruptcy protection, you must disclose all your assets. If you do not, you risk criminal prosecution for fraud and possible time in state or federal prison.
  2. Do not wait to begin asset protection planning until you are sued or if you plan to file for bankruptcy. In some cases, a debtor will transfer or sell a valuable asset to a relative or business partner with the implicit understanding that it will be sold back. This can constitute a fraudulent transfer, or one where the intent was to defraud creditors. If so, the court will undo the transaction, require the debtor to pay the creditor’s attorney fees and prohibit a debtor in bankruptcy from receiving a discharge.
  3. Obtain liability and professional insurance. If you are sued or a court asserts you committed fraud in hiding certain assets, the insurer will provide legal counsel to defend you at no cost to you.
  4. Place your assets into irrevocable trusts. There are numerous types of trusts that your estate planning attorney can explain and establish for you. An irrevocable trust, though, means that you no longer own the assets therein nor can you direct how the assets are to be distributed. You lose the ability to later modify it also. Trust assets are not subject to seizure if they are set up early and funded properly.
  5. If you have a corporation, partnership or LLC that owns certain assets, be careful to not mingle your personal funds with the business or corporate accounts. You must follow the rules regarding how a corporation is operated or a creditor can “pierce the corporate veil” and seize the assets you thought were protected. Have an attorney establish an LLC for you so that its assets are protected from creditor claims.
  6. Overseas accounts may be seized. Although you may think an overseas account in some South Seas island nation will be secure from seizure, US courts are permitted to issue repatriation orders whereby you must bring those funds back to the US. Your failure to comply can result in you being held in contempt and jailed.
  7. Bankruptcy might not save your assets. Depending on which state you live in, your homestead equity might be severely limited. Any other real estate is not exempt. New asset protection laws now limit funds in IRAs and all other qualified retirement plans to $1M though the IRS is not prevented from levying on these funds.
  8. Currently, 13 states allow you to establish a self-settled trust where you can be both grantor and beneficiary though the law limits protection to transfers made within 10 years of filing and only if the transfers were not made with the intent to defraud or hinder attempts by creditors to seize these assets.
  9. Understand how your assets are held and how certain assets were transferred. If you are deposed or cross-examined in court, your lack of understanding or cryptic explanations regarding the purpose of the trusts you set up and any transfers of funds may persuade a court that you intended to defraud creditors.

In any of these cases, the most essential thing you can do is to meet with an experienced trusts and estates attorney to discuss asset protection strategies before a crisis arises so that any assertions of fraudulent transfers or other attempts to defraud the rights and claims of creditors can be circumvented.

Dheeraj K. Singhal
About the Author
I help people keep the things they want and get rid of the things they don't want. I have been a lawyer for over 12 years and there are few things I enjoy more then getting great results for the people that trust me with their legal problems.