2. • Protect the good guys from the bad guys
• “Uglify” assets that would otherwise be attractive
to creditors
What is the
Goal of Asset Protection?
3. Judge Learned Hand on Taxes: "Anyone may arrange his affairs so
that his taxes shall be as low as possible; he is not bound to choose
that pattern which best pays the treasury. There is not even a
patriotic duty to increase one's taxes. Over and over again the
Courts have said that there is nothing sinister in so arranging affairs
as to keep taxes as low as possible. Everyone does it, rich and poor
alike and all do right, for nobody owes any public duty to pay more
than the law demands.” Helvering v. Gregory, 69 F.2d 809, 810 (2d
Cir. 1934), aff'd, 293 U.S. 465 (1935).
Is Asset Protection Ethical?
5. • Rule #1: Know when to say “no” to clients
• Rule #2: Timing is everything
• Rule #3: Asset protection planning should be
incorporated into estate planning.
Essential Rules
for Asset Protection Planning
7. • Client: Neurosurgeon, 55 years old, married, 4 children
• 25 years of experience
• $3 million estate
• $2 million malpractice insurance
• One difficult case goes wrong
• Jury award for $10 million
Example
8. • General liability insurance, casualty insurance, auto insurance,
malpractice insurance, umbrella policy, etc.
• Advantage: Provides a layer of protection to assets
• Disadvantages:
• Claim may not be covered by insurance
• Claim may exceed policy limits
• May attract litigation rather than deflect it
Strategy #1
Insurance
9. • Utah, Nevada, and several other states have asset protection trust legislation
(See Utah Code §25-6-14 and N.R.S. §166)
• How does it work?
• You can be the Grantor, Trustee, and Beneficiary of the trust
• You can maintain 100% control of the investment of the assets in the
trust
• You can benefit from the use of assets in the trust, such as a residence
• Creditors don’t have access to your assets after assets have been in the
trust for a specified period of time
Strategy #2
Asset Protection Trust
10. • Requirements / Restrictions:
• You must be solvent after contributing the assets to the trust
• You must have someone other than yourself with authority to approve
or deny any distributions from the trust
• Must have at least one Utah Trustee for a Utah Trust or Nevada Trustee
for a Nevada Trust
• Must be irrevocable
• The assets become protected when they have been in the trust for
specified period of time
Strategy #2
Asset Protection Trust
(continued)
11. Remember: Pigs get fat. Hogs get slaughtered!
Strategy #2
Asset Protection Trust
(continued)
12. • Types of activities or assets to put in LLCs:
• A business
• Rental real estate
• Things that can generate liability
Strategy #3
Limited Liability Companies
13. • Benefits
• Easy to create and use
• Provide excellent inside-out asset protection
• Provide outside-in asset protection
• Creditors of owners have remedy of a charging order
against the LLC interest (and in some states, foreclosure)
• Requirements:
• Observe formalities – Treat as independent entity
Strategy #3
Limited Liability Companies
(continued)
14. • Family LLCs and Family LPs
• Serve as holding company for family assets including real estate, stocks,
cash, etc.
• “Uglifies” assets, making them much less accessible and desirable for
creditors
• Provides a vehicle for family gifting while parents still retain control of asset
management
• (Note: §2704 Proposed Regs may impact availability of gifting
discounts from family LLCs / LPs)
• If client is worried about children’s creditors, gift interests to
irrevocable trusts for children’s benefit
Strategy #3
Limited Liability Companies
(continued)
15. IRAs, 401(k)s, pensions, and profit sharing plans
• Generally exempted from creditor claims by state
law, at least to some extent.
• Utah Code §78B-5-505(1)(a)(xiv)
Strategy #4
Retirement Accounts
16. • Upon the death of the first spouse to die, create a Marital
Trust or Credit Shelter Trust (depending on estate tax
needs)
• The Marital or Credit Shelter Trust will shelter assets from
the surviving spouse’s creditors (at least until the assets are
distributed to the surviving spouse)
• Help protect the surviving spouse from opportunistic friends,
housekeepers, or family members
Strategy #5
Marital Trust and Credit Shelter
Trust Planning
17. • For wealthy clients, irrevocable trusts can serve two
purposes: Asset Protection and Estate Reduction
• Qualified Personal Residence Trust (QPRT)
• Intentionally Defective Grantor Trust (IDGT) for benefit
of children (protects assets from Grantor’s creditors and
children’s creditors)
• Grantor Retained Annuity Trust (GRAT)
• Charitable Remainder Trusts
Strategy #6
Gifts to Irrevocable Trusts
18. • Outright gifts to family members
• Gifts to charities
• Sale of an asset to children with a long-term
note
• Life Insurance cash value
Other Options to
Protect or “Uglify” Assets
19. D E B T O R # 1 D E B T O R # 2
If you are a Creditor,
which scenario do you prefer?
Residence
Value: $500,000
Investment
Accounts
Value: $1,000,000
Real Estate
Investments
Value: $2,000,000
Cash and
Liquid Assets
$500,000
Asset Protection Trust
• Residence valued at $500,000
• Cash and liquid assets of $400,000
• 98% ownership of Family LLC with
Real Estate Investments valued at
$1,960,000 (other 2% gifted to kids)
Retirement Accounts
Value: $1,000,000
Cash and Liquid Assets
Value: $100,000
