When is the Best Time to Start Asset Protection Planning?

Now is the best time to start asset protection planning. If you are a physician concerned about a potential medical malpractice lawsuit, or just someone who realizes there is potential liability every time you get in the car and drive down the road. If you have something to protect, then you should utilize the laws of Tennessee which are very favorable to asset protection. You do not want to wait until the lawsuit has already arisen or the debt that you are trying to avoid has already gone into default because that can be problematic. It’s not fatal but it makes it more difficult. Asset protection planning is about giving individuals leverage in negotiating and mediating a claim with the creditor, trying to keep the creditor from filing a claim in the first place. After you’ve done the planning, you simply get on the phone to inform plaintiff’s counsel there is nothing left for them to attach, or that it would be very difficult to pursue any sort of action. However, it really limits your planning options if the lawsuit has already arisen. It takes a lot of tools away as it relates to asset protection planning, so you want to plan now to make sure that you are protected.

Why Can’t Assets Just Be Transferred to My Spouse or My Children?

There are three things that stand in the way of transferring assets to your spouse or children.

  1. We have the bankruptcy code. If you file for a bankruptcy and you say, “I’ve got all these debts and I’ve got all these creditors. I’m just going to give the assets to the kids”. If I file for bankruptcy within 10 years, the bankruptcy court can pull all those transfers back and they will look to the kids to get those assets back and that could include attorney’s fees and other issues for the kids.
  2. There is the fraudulent conveyances act. They would come after the kids to get the assets back if it looks like they are merely holding them for you until the liability issue has gone away.
  3. The state of Tennessee has created a framework for us to be able to protect our assets or the assets of our clients and that framework does not include just transferring assets outright to the kids or the children. It may include naming the children as a trustee of the trust or a distribution trustee or making them a beneficiary of some of the structures or making them the manager of an LLC.

You can involve them but doing an outright transfer to the kids is very suspect because most of asset protection planning we are doing under the guise of a valid business purpose, whether it’s management of investments or trying to protect a business like a farm or a dental practice. When you are just transferring assets to children then there is no real business purpose to do that.

Are Some Assets Protected Already on an as is Basis?

Some assets are protected already on an as is basis. For example, sometimes we are not so concerned about creditor protection and trying to avoid paying debt. Maybe we are concerned about the cost of long term care. We might do an asset protection trust to allow someone to qualify for TEN Care or Medicaid or if they are a veteran they might qualify for VA Aid and Attendance Benefits. On the Medicaid side, your retirement accounts, or as we call them, your qualified accounts, your 401(k), 403(b), 457, IRA, Roth, all those types of things are exempt if you are trying to qualify for Medicaid. There is built into the law a bit of asset protection with respect to those retirement accounts. Those really are some of the best vehicles for asset protection; those assets are protected as is.

A primary residence is a homestead exemption that can be used to try to preserve some of the equity if you were forced into bankruptcy from your creditors. If you are in a community property state, and Tennessee is not necessarily a community property state but they do allow you to create a community property trust, well the separate property of your spouse is protected. If there is a lawsuit that you are dealing with at your own private profession but the marital assets are owned by your spouse they are separate property. Creditors really can’t attach those assets and that might be a good reason to define the assets as separate property of one spouse or the other to protect them.

How Do You Advise Clients That Are Reluctant to Do Asset Protection for Fear of Losing Control Over Their Assets?

There are a number of different asset protection techniques. A lot of them provide some control to the clients. For example, when I set up a domestic asset protection trust, I do that coupled with an LLC.  Yes, we may have an independent trustee on the trust but the assets are going to be titled in the LLC. You can have the client as the manager of the LLC, to manage the real property, collect the rents, make investment decisions, and rebalance a portfolio. Under a trust, we might give the client a right to a portion of the principal of their income so they are still a beneficiary but we might also add in the children as other beneficiaries to make the assets more accessible. There is going to be some trust and relying on third parties to have a bulletproof asset protection plan, but the clients are always involved and they are part of that plan and they still retain a substantial amount of control.

For more information on Initiating Asset Protection Planning, 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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