What is Asset Protection Planning as It Relates to Estate Planning?

Asset protection planning is the legal process of structuring your assets, such as real property, cash account, and investments in a way so that they can’t be attacked by potential creditors, the IRS or others that may try to pursue some legal remedy against you, whether this is with trusts, corporate entities, utilizing community property versus separate property, laws, gifting your assets, etc.

Is It Illegal to Shield Assets From Creditors?

Yes, it is legal to shield assets from creditors but there are certain parameters that need to be followed. Some people ask the question not if it is legal but if it is ethical to shield your assets? The truth is everyday potential litigant’s and their lawyers are getting more and more creative by creating new theories of law to get at a person’s assets. If they see that someone has a lot of money and even modest wealth, they see dollar signs. If they have a perceived wrong, they will pursue your assets with the goal of forcing you into settlement or mediation to get a portion of your assets for themselves. In Tennessee, we have what is called the Fraudulent Conveyance Act which provides that if you have a known creditor and try to move your assets, the creditor can potentially set aside the transaction putting the asset back in the estate whether you have gifted it or have undertaken asset protection planning.

Asset protection planning is for people who know there is a risk and want to act before the facts leading up to the potential liability have taken place. For example, if you’ve been in a car accident and it’s already taken place and you have hired a lawyer and they are coming after you, that’s probably not the best time to do asset protection planning. If you are in a high-risk profession, maybe a physician, and you know people who are similarly situated are targets of lawsuits then it would make sense to begin asset protection planning and utilize favorable laws, like a Tennessee Domestic Asset Protection Trust, which is sometimes referred to as an investment services trust. In Tennessee, the legislature has said that if someone is trying to assert that you moved the assets to defraud them then they’ve got to prove that by clear and convincing evidence, which is a very high standard. They’ve also said that if you utilize some of these techniques, public policy is not a reason for trying to set those aside. The legislature has made it very clear that they stay on the side of individuals trying to protect their assets from these lawsuits and creditors and they’ve created a number of mechanisms to be able to do that.

Does a Revocable Living Trust Count as Part of an Asset Protection Plan?

A revocable living trust does count as a part of an asset protection plan. A revocable trust provides some asset protection but provide creditor protection, some people will make that mistake. They will come in and talk about making a trust and say, “Okay, now I’m protected from creditors, right?” No, the asset protection that’s provided from a revocable trust is really the avoidance of a conservatorship and the avoidance of probate, both court proceedings can be very expensive. A Conservatorship proceeding may come up when you are incapacitated if successful, the court will appoint a manager to step in to manage your financial and healthcare decisions. The Conservator will track every moment that they spent on your case whether they touch your file, stand in the shower thinking about your case, or on the phone. Ultimately, they will petition the court to be paid from your estate for their time spent on your case.

Depending on the powers the Conservator seeks, the court may appoint you an attorney who will guide you through the situation, make recommendations to the court. They too can expect to be paid from your estate. They must file periodic accountings, all that time is paid from your estate. A conservatorship can be a real bleed on a person’s assets. By having a well-funded revocable living trust and power of attorney, there is massive protection because it avoids conservatorship. Naming the people, we want to step in and make the financial or healthcare decisions and that’s going to save a lot of money. Also, if you’ve set up a revocable living trust and you’ve moved the assets into the trust to avoid probate then you are not going to be subject to the court’s oversight after you have passed away. You will have avoided high attorney’s fees, executor’s fees, and court costs. So, in that respect there is substantial asset protection. Unfortunately with a revocable trust, the individual creating it is usually the grantor and trustee meaning they are managing the assets and are usually the beneficiary, which means that the federal, state, local governments and the courts will look at that individual as the owner of the assets. If they are sued or if they are being pursued by a creditor then those assets will be available to satisfy a creditor’s judgement.

For more information on Asset Protection Planning In Tennessee, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (615) 628-7775 today.

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