January Webinar On Fraudulent Transfer Law
On January 26th, at 10 AM CST, I'll be giving a webinar on fraudulent transfer law. Attendance is free. You can sign up at this link.
What is Asset Protection?
Asset protection is a legal method of reducing your exposure to various types of risks by placing assets into various protected structures. In addition, these structures are typically organized in a manner to minimize the negative impact of a particular event. For example, did you ever wonder why both Pepsi and Coca-Cola have bottling divisions? It minimizes liability. If there is a problem with the physical product, the bottling division will be the target of litigation. However, the intellectual property is owned by a separate structure keeping out of the defendant’s chair if the bottling division is sued. However, all businesses should consider their actual structure from the perspective of being potential litigation, which is the essence of asset protection.
In general, there are two negative situations asset protection seeks to minimize. The first is bankruptcy. Here, planners work with the bankruptcy code to help clients survive bankruptcy. However, it's important to realize there is only so much a planner can do in this area. The bankruptcy code exemptions are very clear -- and also fairly limited. The second negative event planners work at minimizing is litigation. Here we have far more flexibility (so long as there are no fraudulent transfer issues). By using various structures, it is possible to greatly reduce the negative impact of litigation. Other events that are considered in the plan are divorce (both of the client and the client's children) death (but this falls more under estate planning) and incapacitation.
It’s also important to understand what asset protection isn’t. Asset protection cannot create a bullet proof strategy that is unassailable in all situations – and don’t let anyone tell you differently. The most striking example is bankruptcy; as mentioned above, the bankruptcy exemptions are very clear and very narrow; anything that falls outside them is swept up in the bankruptcy estate to pay creditors. In addition, if a person does not maintain the plan, trouble can emerge. For example, a person that forms a corporation that does not keep up with corporate formalities could have the court “pierce the corporate veil,” meaning the person will become personally liable for the claim.
Who Should Engage in Asset Protection?
All businesses should have an attorney who specializes in asset protection look at the overall business structure at least once every few years to make sure their overall structure provides maximum protection. In addition, all high net worth individuals (people with at least $1 million in net worth) should have a plan in place, as their wealth is a natural litigation target. There are also several professions that naturally benefit from asset protection planning. Doctors lead the pack, followed closely by other licensed professionals (accountants, lawyers and engineers etc..).
About This Website
I've organized this website to take you through the basic steps of forming and implementing an asset protection plan. It starts with a look at fraudulent transfer law, which tells us when we can create and implement an asset protection plan. This is followed by an explanation of the various structures (such as corporations, partnerships and trusts) we use to create a plan. Finally, there is an explanation of my overall methodology. Should you want to know more, please call my law office at 832.330.4101.
This is one of several webpages maintained by the Law Office of Hale Stewart. Here are links to the others:
Hale Stewart's Tax Law Blog
The Bonddad Blog (economic commentary)
Buy my book on Captive Insurance
_734 East 29th Street, Houston, Texas, 77009 Phone: 832.330.4101