Thorough Estate Planning Can Help Protect Assets - and Provide More Privacy

Much of my work is centered on helping clients protect their assets during their lifetimes.  But most people also want to make sure that their assets are protected after their deaths.

A recent article in the New York Times describes a very public fight among relatives of actor/comedian Robin Williams.  His widow and his children from prior marriages are fighting over money and personal belongings.  Mr. Williams obviously could afford excellent attorneys, and his estate planning documents may have been very well prepared.  Even so, you can never underestimate the possibility of family members disagreeing about things after your death.

This is simply a reminder that even with the help of excellent attorneys, devising and implementing an effective estate plan is still a challenge.  It is clearly worth the time and effort.  It is a blessing to surviving family members when things are spelled out as thoroughly as possible.  This not only helps family harmony (by avoiding unnecessary arguments), but can also save a lot of family money. 

Careful estate planning should be part of your asset protection planning.

Debtors Are Often Easily Victimized By Bogus Collection Agencies

Anyone who is deeply in debt knows the terrible stress and fear that often results from being in that situation.  So it is no surprise that many debtors are easily victimized by phony collection agencies. 

A recent article by Sheryl Harris in the Cleveland Plain Dealer highlights a scam by a Georgia collection agency that took millions of dollars from consumers in all 50 states.  Many victims were payday loan debtors who are often most vulnerable to this type of scam. 

The FBI reported that callers routinely pretended to be FBI agents, U.S. marshalls, sheriffs or Justice Department employees.  Callers frightened people into paying them by telling them that warrants were out for their arrest—or even that officers were on the way to arrest them.  The Georgia company employing these tactics now has criminal charges pending against it. 

This is another reminder to be wary of any debt collector who is threatening or who makes unreasonable demands.  While many of these victims are low income individuals, it is important to remember that middle class and even very affluent individuals can unexpectedly find themselves in debt and the target of debt collectors.  Protecting your assets to the greatest extent allowed by applicable law is more important these days than it has ever been before.

Social Media Explosion Creates Even Greater Urgency for Asset Protection Planning

An interesting article by Cindy Krischer Goodman in the Miami Herald provides some excellent examples of how fortunes today can change in an instant -- due to social media.  For example, racist comments in a private phone conversation between the Los Angeles Clippers’ then owner, Donald Sterling, and his girlfriend went viral and literally cost him ownership of an NBA team.  Private behavior can become almost instantly public through social media – and can result in almost instant financial disaster.

Certain exposure on social media is certainly not bad.  I am simply offering a reminder that in today’s world, your fortunes can turn almost instantly.  And protecting your assets before some unexpected disaster strikes is more important than ever.

Economic Disaster Can Strike At Any Time

The primary concern for most of my asset protection clients is a sudden catastrophic lawsuit.  Physicians, business owners and high net worth individuals (and almost anyone else with assets worth protecting) are fearful of that one mishap that could threaten everything they have earned during their lifetime.  A surgeon who has performed thousands of successful surgeries can still potentially lose everything from a single, inadvertent mistake during one procedure.  It is unfortunate our current system allows this; but that is the reality. 

The recent government shut down (and our coming within one day of a federal debt default) is a different kind of reminder: that general economic conditions can also turn disastrous at any moment.  While we once again averted a potentially devastating economic problem, budget battles and confrontational style politics continue to create economic uncertainty.  Real estate owners and developers discovered only a few short years ago that their very substantial net worth could plummet rapidly from completely unexpected changes in the economy.

Considering the use of various trusts, limited liability companies and other entities; maximizing your use of 401(k)s and other protected asset categories; and considering a variety of other asset protection alternatives is advisable before you have any unexpected financial troubles.

Asset protection planning obviously cannot completely insulate you from adverse changes in the stock or real estate markets.  But long term planning while you have no serious creditor issues can pay a very high dividend in the long run.

Too Many Lawyers Could Mean More Lawsuits

I have seen statistics forecasting about 28,000 new law graduate jobs opening each year for the next ten years.  But law schools currently appear to be on pace to graduate about 44,000 lawyers per year in that same time period.  This would create a significant over supply of lawyers.  Even worse, it appears that there are already too many.  Almost half of recent law school graduates do not have a law related job within nine months after graduation. 

While many middle income Americans still do not have reasonable access to legal services, that situation will not likely be helped by simply turning out more and more lawyers. 

Needless to say, one of many unfortunate effects of having too many attorneys is the possibility of more and more litigation. 

This is one of many societal trends that make it more important than ever to protect your assets before you unexpectedly end up in the middle of some catastrophic lawsuit. 

"Fiscal Cliff" Concerns, Hurricane Sandy Provide Asset Protection Reminders

Financial disaster can stem from personal setbacks like divorce, business disputes, litigation, and numerous other causes.  But the last few months of 2012 remind us that sudden, unexpected financial catastrophes can also come from other sources - - like natural disasters and general economic conditions.

Hurricane Sandy is a grim reminder that certain losses are simply not covered by insurance.  The potential “fiscal cliff” we are currently facing is a grim reminder that political deadlock can trigger severe economic woes.  Our current environment is increasingly one of uncertainty.  It is more prudent than ever to structure assets in a way that they are as protected as applicable law permits. 

Simply re-titling assets between spouses (and possibly other family members); family LLCs; and various trust arrangements are just a few of the possible strategies that could better protect your assets.  There is no “magic bullet.”  Each situation has to be analyzed on its own.  But one thing is clear:  asset protection planning (just like estate planning) is best done before disaster strikes.

Jurors Using Social Media During Trial is a Growing Problem

In case you needed yet another reason for asset protection planning…

An increasing problem with jurors is the unauthorized use of social media during trial.  A recent front page article in the Cleveland Plain Dealer by Alison Grant on August 29, 2012 has some shocking examples.  One juror tried to “friend” a witness.  Jurors in an embezzlement trial discussed the case on Facebook.  In another trial, nine jurors admitted conducting Google searches and checking Wikipedia.  These kinds of actions by jurors are prompting courts to give jury instructions about the use of social media during trials.

I believe most jurors treat their responsibilities very seriously and do their best to reach a fair verdict.  But it is important to keep in mind that it is often difficult to predict how a judge or jury will rule.  This is one of the big reasons to take advantage of laws that allow you to protect your assets – before you are involved in any litigation.

Control of Electronic Assets After Death

As I mentioned in a post last March most of us now have multiple on-line accounts; and very few people consider what happens if they die and no one can access those accounts.

One of my associates, David M. Lenz, recently published an excellent article on this topic titled "Afterlife on the Cloud".  As Dave mentions, we are increasingly living in an electronic world.  When death comes, a person may now leave behind many digital items that contain valuable information -- and which may have intrinsic monetary value.  In many instances, failure to do any planning with respect to these digital items can create a huge problem.  And the inability of your executor or other personal representative to gain timely access to your digital accounts could leave them more vulnerable to creditors.

At any rate, planning for digital assets is now essential from both an estate planning and asset protection standpoint.

Collapse of Major Law Firm -- Another Reminder That Disaster Can Strike At Any Time

As reported by Peter Lattman in The New York Times yesterday and today, a major New York law firm -- Dewey & LeBoeuf -- is on the verge of bankruptcy.  The firm was aiming to become a global powerhouse in corporate law.  At its peak, it had more than 1,300 lawyers in 26 offices all over the world.  It appears to have taken on too much debt; expanded too rapidly; and is on the verge of collapse.

Many individuals and business have gone bankrupt in recent years.  The collapse of a giant international law firm is a grim reminder that any of us can suddenly find ourselves in totally unexpected financial trouble.  Having a reasonable asset protection plan in place prior to any such problems can be a huge benefit.  If even a giant law firm can collapse within a very short period of time, it is obvious that no business or individual is immune from unexpected financial distress.

Medical Malpractice Suit can be Emotionally Devastating to a Physician

Being named as a defendant in a medical malpractice case can be emotionally devastating to a physician -- even if the physician is only peripherally involved in the case. Very few people fully appreciate how troubling it can be for a doctor who is named in such a lawsuit.

An excellent article by Pauline W. Chen, M.D. in the New York Times articulates very clearly how involvement in a medical malpractice suit can negatively impact a physician's way of practicing medicine.

According to the article, a recent survey of more than 7,000 surgeons found that nearly one in four were in the midst of litigation.  The lead author of the survey (Dr. Charles M. Balch of the University of Texas Southwestern Medical Center in Dallas) notes that malpractice is at the top of the list of major stressors for most physicians.

I have found that meaningful asset protection can be a huge benefit to a physician -- not only financially, but emotionally as well.  Having reasonable malpractice insurance is a critical first step.  But going a step further -- and making sure that you have done everything reasonably possible to lawfully protect your personal assets -- will usually bring quite a bit of peace of mind.

Asset Protection Planning Should Have a Multi-Generational Focus

It is generally estimated that more than half of all Americans have absolutely no estate planning documents.  This can potentially create a lot of hassles for your loved ones.

But even those Americans with very good estate planning documents often fail to focus on asset protection for their children and other beneficiaries.  If you simply leave assets to your beneficiaries without any kind of ongoing trust arrangement, those assets can generally be reached by their creditors with little effort.

We now recommend dynasty trusts for many of our clients.  These trusts are not as exotic as the name might imply.  They simply allow your children and other beneficiaries to hold assets in a continuing trust arrangement.  This can provide better protection in the event of a divorce; and it can also provide better protection from future creditors of the beneficiaries.

Providing some added protection for the assets that you leave to your loved ones can be an important gift to them.

Small Business Owners and Public Company Executives Both Need Asset Protection Planning

A June 8, 2011 New York Times article by Steven M. Davidoff (a law professor at the University of Connecticut School of Law) notes that personal liability for directors and officers of large publicly held companies is less common than most of us think.  Professor Davidoff argues that the upside of serving as a director or officer of a large public company is huge, and the down-side is very limited.

Even if the potential liability of public company officers and directors is not all that high, such individuals are still in need of asset protection planning.  These individuals will generally have a high net worth.  They can face potential liability from numerous other sources -- anything from divorce to an auto accident.  While many potential risks can be covered by insurance, personal asset protection is still advisable.

Small business owners may face a far greater risk of personal liability than public company officers and directors for a variety of reasons:

  • Small business owners frequently have to personally guarantee company obligations -- which makes them directly responsible for those debts.
  • "Piercing the corporate veil" arguments will more likely be raised against a smaller business than a larger one.
  • Legal fees alone can be catastrophic for a small to medium sized business owner, even if he or she is eventually successful on the underlying claim.
  • Smaller businesses and their owners frequently carry less insurance than larger companies.

Whether you are running an international conglomerate or you own a small or medium sized business, you should focus on protecting your personal assets to the greatest extent permitted by applicable law.

Even Mozart Should Have Had An Asset Protection Plan

A fascinating article by Daniel J. Wakin in the November 29, 2010 New York Times reveals that even Mozart should have done some asset protection planning.

An aristocratic friend of Mozart's sued him and won a judgment for an amount of more than two times Mozart's annual income.  The judgment called for garnishing half of Mozart's salary.  Mozart died shortly after the judgment was entered against him, and it appears that the creditor chose not to press Mozart's widow for payment of his debt.  But it is clear that the judgment caused Mozart a lot of stress and financial difficulty.

The article on Mozart shows that even in the 18th century, high profile and high net worth individuals faced significant financial difficulties from legal judgments against them.  If Mozart were alive today, I am confident that he would recommend very serious attention to an asset protection plan.  And he would urge you to develop such a plan before you run into financial difficulties -- not after there is a lawsuit or judgment against you.

Parents Should Always Consider a Trust for Children

Trusts are not only for the rich.  Anyone with minor children (and even children in their 20's) should consider a trust for their family.

If any property passes to a child under your will, from a bank account "payable on death" or otherwise, the child will generally get all of that money at age 18.  The same holds true if you have named a child under a life insurance policy, IRA or other retirement account.  Even if money is held in a Uniform Gift to Minors Account, the child gets everything at age 18.

Some people are very responsible and financially sophisticated at that age.  But let's face it -- many are not.  A lot of teenagers and twenty-somethings would rather party than manage their investment portfolio.

Many parents do not think about how much their children could inherit at age 18.  While most Americans are strapped for cash and living paycheck to paycheck, the value of their estates (including house, life insurance, retirement accounts, etc.) could be substantial.

By creating a trust, funds can be held by a trustee and used to pay education, housing and other expenses.  Any remaining balance can be distributed at a later age.

While I deal with many more complex asset protection vehicles, a fairly simple family trust arrangement can prove to be a huge benefit.  It can greatly increase the odds that your hard-earned money will not be wasted away in the event of your death.

More and More Affluent Americans Facing Creditor Problems

The recent economic downturn has caused creditor problems for many wealthy Americans who never dreamed they would be in this kind of situation. A front page article in the July 9, 2010 New York Times reported that one in seven homeowners with loans in excess of $1 million is seriously delinquent. Foreclosures are occurring at shocking rates in affluent areas. One of several examples given by the New York Times is that the sheriff in Cook County, Illinois is increasingly in demand to evict foreclosed owners in the upscale suburbs to the north and west of the city -- like Wilmette, LaGrange and Glencoe.

In the past, most affluent Americans have paid little attention to asset protection. In better times -- when the real estate market and the stock market seemed to go nowhere but up -- it was difficult for many affluent Americans to imagine they would ever face serious creditor problems. Those days are gone. Focusing on the downside has now become a critical part of the planning process for the wealthy. Part of that focus should include a review of how all your accounts are structured and titled to be sure you have not missed opportunities to protect certain assets from creditors. As I have said many times before: the best time for that planning is before you have any financial problems -- and not once you are facing issues with creditors.

Volatile Economic Conditions

The Dow Jones industrial average fell 324 points last Friday, its second worst slide of the year.  The drop pushed the stock market back into a "correction" -- meaning a decline of at least 10% from its recent high.

While I remain optimistic about the economic future of our country, we obviously face great challenges in the coming years.  Stock market volatility is here to stay.  General economic conditions remain uncertain; and competition from abroad will be a constant challenge.  So it remains critical to examine your assets from time to time (business and personal) and consider how well they are protected from creditors.

If you are a resident of Florida and own a home in Florida, and most of your assets are in IRA's and qualified plans, you have little to be worried about from an asset protection standpoint.  On the other hand, if you live in Northeast Ohio and a significant portion of your assets are invested in a family business, it is vitally important that you consider how well your assets are protected from creditors.

Many people focus on asset protection after some economic disaster strikes them.  By that time it is often too late.  The time to focus on protecting your assets is now -- before you have any creditor problems.

More Advice on Business Succession Planning

In a post last month, I emphasized that a business can be lost or severely damaged by lack of a meaningful succession plan.  The title of an article in yesterday's New York Times says it all -- "Lack of Succession Plan Puts Family Venture at Risk".  The article has some useful suggestions for closely held business owners, and it outlines some of the items that should be addressed in a succession plan.

In a February post I noted that business succession planning should be a team effort.  Some matters require business expertise; but many issues require sophisticated legal planning.  For example, the New York Times article mentioned some fifth generation family owners in Columbus, Ohio who prepared a fifteen year plan to pass on the company to the next generation, using a mix of grantor retained annuity trusts and family limited partnerships.  These vehicles can lower tax liabilities as well as provide a legal framework for succession in the business.  This is a good reminder that careful business succession planning may help save taxes and provide other benefits in addition to simply determining who will run the company.

Can Asset Protection Planning Actually Make You Happy?

Asset protection planning can bring a lot more certainty to our lives -- at least with respect to financial matters.  And there is a lot of evidence that certainty makes us happier.

Personal planning -- whether financial planning, estate planning, or asset protection planning -- clearly brings a degree of certainty to our lives.  A good estate plan cannot insure that your stock portfolio will do better next year.  But it can give you the comfort of knowing that whatever assets you do have will be distributed the way you want.  Estate planning thus brings a degree of certainty.  Likewise, asset protection planning can give you the comfort of knowing that you have done what you lawfully and reasonably can do to protect your assets.

A recent article by a Harvard psychology professor says that certainty actually makes us happy -- even happier than having more money. 

I see this all the time with respect to asset protection planning. Some business owners and individuals (including physicians and other professionals concerned about catastrophic lawsuits) are sometimes more worried than they should be about losing everything in a huge lawsuit.  If adequate insurance is in place, the risk of losing all your assets as a result of a malpractice suit or other litigation may be relatively small.  Nevertheless, worrying about a risk can literally be catastrophic in itself.  After consulting with an asset protection attorney a client knows what strategies are reasonably available and which are not.  Knowing that you have done whatever you reasonably can to protect your assets usually brings a significant amount of relief.  

Professor Gilbert says in the article I referred to above that certainty can bring greater happiness than money.  While asset protection planning will obviously not provide certainty in all aspects of your life, it can significantly reduce the uncertainty about what will happen if you face losses from some catastrophic lawsuit.  And it seems that should make you a lot happier.