Asset Protection Strategies: Common Misunderstandings
In the realm of financial planning, asset protection is a topic that has garnered significant attention. Yet, the information available is often contradictory and fraught with falsehoods, making it a challenging area for many.
One critical aspect to remember is that domestic asset protection planning must strictly comply with U.S. laws. However, this may not be enough to deter creditors. The key lies in the planners' understanding of the applicable areas of law, a responsibility they should not shirk by simply relying on others' words.
This lesson was poignantly demonstrated by the late Denver lawyer Barry S. Engel, who assumed the Impossibility Defense would shield FAPT settlors from jail. Unfortunately, this presumption was proven false in two 1999 cases.
The quest for the perfect asset protection plan, often referred to as the "Silver Bullet," is a myth. Each plan must be tailored to the individual client, taking into account their specific circumstances and the laws of the jurisdiction they reside in.
The laws that typically apply in a creditor's attempt to collect against a debtor are those of the debtor's residence. Creditors, known for their "sue first, investigate assets later" mentality, are not deterred by the existence of an asset protection plan.
The "Do-It-All" structure, which consolidates all assets into a single entity (usually a trust), is not recommended due to the risks of putting all one's eggs in one asset protection basket.
Offshore asset protection planning, while popular, is not a panacea. It has its origins in offshore planning, but when it moves onshore, all applicable bodies of law become critically important. Offshore planning can be effective only if the person of the debtor is also outside the U.S. courts' contempt remedy.
It is essential to note that creditors have access to planners' descriptive materials about their asset protection planning and may use this information to defuse the plan in court.
Advertised asset protection plans that have never been tested in court by an appellate court should be approached with caution. The field of asset protection planning lacks a standardized methodology, making it crucial for planners to conduct thorough research and avoid intellectual laziness.
In recent years, there has been an increased interest in asset protection planning among clients. However, it's important to remember that the existence of an asset protection plan can sometimes drive down settlement value, more so with offshore planning than domestic planning.
In conclusion, asset protection planning is a complex field that requires a deep understanding of various bodies of law and a bespoke approach for each client. It is not a one-size-fits-all solution, and it's essential to approach it with caution and thorough research. The lawyer who has played a significant role in recent years as a specialist in asset protection measures and was instrumental in the development of asset protection trusts in the Cook Islands is Jay Adkisson.
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