Success often brings material gain, but it can also bring concerns.  Recently a client asked me how he could protect his hard-earned wealth from the possible claims of creditors.  First, let me say that none of the suggestions in this article may be used for individuals that have current claims against them.  Transferring assets after a claim has been made is considered a fraudulent transfer and is prohibited by law.  My first advice is always that good insurance is one’s first line of defense against a liability. However, the transfer of assets as part of a complete estate plan is often prudent, and should only be done in consultation with an attorney to ensure that the most appropriate methods are used given a client’s situation.

So, what are the techniques that may be used in an estate plan to assist a client in protecting his or her assets?  One possible avenue that is open to married couples is to hold property as husband and wife; this is termed “entireties” property.  The advantage of holding property by the entireties is that, as a general rule, the debts of one spouse cannot cause the sale of the entireties property.  For example, a husband’s individual debt, such as those from a personal guarantee on a business loan, will not allow the creditor to cause the sale of the personal residence owned by husband and wife.  There are several exceptions to this rule, including bankruptcy and federal tax liens; therefore, individuals should always consult their attorney to create a complete and appropriate estate plan.

A second planning technique involves gifting.  An individual may make annual gifts of $12,000 to as many other individuals as he or she chooses without having to file a gift tax return.  An individual also has a lifetime gifting credit that will shelter the first $1,000,000 of gifts.  With gifting, as with any transfer of property, one must make sure that this is done without violating the statutory fraudulent conveyance prohibition.

A final technique is to create and fund either an offshore or domestic trust.  Using this planning technique, an individual will transfer a portion of his or her assets to a trust created in one of the states (notably Alaska and Nevada) that currently allow for individuals to create trusts that both protect the assets of the individual and allows for the individual to continue to benefit from those same assets.  The individual must choose a trustee who will control the assets, and often that trustee must be a resident of the state in which the trust was created.

As you might imagine, such a step is time consuming, expensive and should not be done without counsel.  Also, as these are relatively new entities, there are unresolved issues as to whether such a trust would actually survive a creditor’s challenge as to the trust’s protection of assets.  However, taking these risks may be appropriate in some cases.

Asset protection techniques are worth discussing, especially for professionals for whom malpractice liability extends to the individual personally.  Any and all of the techniques discussed in this article should be considered, but final decisions should only be made when considering all of the possible outcomes of such a choice.

		Leeann B. Reimann is an attorney and a certified public accountant.