Asset Protection Law Journal : Asset Protection Lawyer & Attorney : Kenneth J. Laino : Schneider Smeltz Ranney & LaFond Law Firm : Trusts, Estate Planning

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.

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While estate planning and asset protection planning are related, they are not the same.  An asset protection plan is designed principally to protect your assets from creditors during your lifetime.  It can also be designed to protect assets you leave to your spouse, children and other family members.

An estate plan is focused more on how you want your assets distributed after your death.  Estate planning involves other considerations as well (including Powers of Attorney; Health Care documents; minimizing estate taxes; etc.).  But the central focus of estate planning is distribution of your assets following your death.

Assets can be well protected from creditors but still included in your gross estate for federal estate tax purposes.  For example, funds in your 401(k) account are well protected from creditors.  But these funds will be included in your gross estate for federal estate tax purposes.  The point here is that even though you have an asset protection plan, you may still need an estate plan review, and vice versa. 

Asset protection planning and estate planning are clearly interrelated.  But I have learned that many individuals have a rather sophisticated estate plan (often carefully designed to minimize estate taxes); but that plan may do little or nothing to shield assets from creditors.  Many individuals would benefit from consulting with an asset protection lawyer even if they already have a good estate plan.

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For anyone who did any asset protection planning in 2010 -- If you made a gift of more than $13,000 to anyone other than your spouse, you are required to file a federal gift tax return to report the gift(s).  The filing is made on IRS Form 709.  A gift tax return for gifts made during 2010 is due by April 15, 2011.

Assets are frequently transferred from one person to another in connection with asset protection planning, and also in connection with routine estate planning.  It is very important to remember that a gift tax return may be required in connection with such transfers.  If you transfer assets worth more then $13,000 to anyone other than your spouse for no consideration (that is, as a gift), you probably have to file a Form 709.  You will not owe any tax if you are simply applying the amount of the gift to your lifetime federal exemption.  That amount (which is now a unified federal estate, gift and generation-skipping transfer exemption) has been increased to $5 million for 2011 and 2012.  Gift tax will be due once you have used up your applicable lifetime federal exemption.

This post is just a very brief overview of gift tax filing requirements.  It is certainly not a complete summary of all requirements.  If you made a gift to anyone of more than $13,000 in 2010, you should consult with your tax advisor to determine whether a gift tax return is required.

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Family limited liability companies can be a convenient vehicle to hold and administer family investments.  They offer significant benefits from both an estate planning and asset protection standpoint.  Until recently, the entity of choice for family investments was a family limited partnership (often just called an FLP).  While there is nothing wrong with an FLP, we are now using LLC's more frequently.  There are some technical legal differences between the two forms of entity, but the benefits are basically the same.

Holding family investments (such as marketable securities and real estate) in a family LLC makes it significantly more difficult for a creditor to reach those assets than if they were held individually.  Keep in mind that not only you, but also your children and other family members could potentially have future creditor problems.  So an LLC can help protect the interests of all family members.

A family LLC can also be a useful vehicle for estate planning purposes.  Rather than making outright gifts to children, you can gift interests in the family LLC.  You may be able to take advantage of some discounts for gift and estate planning purposes.

The bottom line is that a family LLC can be a useful tool for both asset protection and estate planning purposes.

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Poor (or no) estate planning can lead to catastrophic losses of family assets.

Check out the article by Claudia Buck in The Portland Press Herald with some sad stories of families who wasted lots of money due to poor estate planning.  Some simple steps can avoid family fights and save legal fees.  These include earmarking personal property; carefully choosing your executor and trustees; and carefully thinking through the provisions of any trust agreements.  This particular article does not discuss federal and state death taxes, which are another important consideration.  Failing to take these taxes into account in connection with an estate plan can result in staggering losses for many families.

Having basic estate planning documents in place will not provide a complete asset protection plan.  Estate planning is, however, one of the important components of an overall plan to protect your assets.

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