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.

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. 

A recent decision by the Ohio Court of Appeals (Second District) held that the City of Springfield, Ohio was entitled to “pierce the corporate veil” of the defendant corporation in order to reach the shareholder’s assets.  The court further held that transfers totaling about $900,000 to its shareholder (proceeds from the corporation’s sale of real property) were fraudulent conveyances pursuant to §1336 of the Ohio Revised Code.

This case was decided in June of 2013, but only recently published in the September 16, 2013 edition of the Ohio State Bar Association Report.

Forming a corporation, trust or other entity in and of itself does not automatically protect assets.  How the entity is operated (and how and when various transfers are made) also needs detailed attention.  The trial court in this case paid particular attention to the timing of the transfers in finding that they were fraudulent.

At a minimum, this new Ohio decision is another reminder that simply forming a corporation, trust or other entity is not enough for asset protection.  You need to pay close attention to how that entity is operated (and how and when various asset transfers are made).

 

Ohio Revised Code §5816.03 (C) provides that certain creditors can defeat the spendthrift provisions of an Ohio Legacy Trust.  This includes claims for child support and alimony.  But the applicable provisions of the Ohio statute only apply to a “spouse or former spouse.”

This means that if an Ohio Legacy Trust is formed before you get married, the assets in that trust should not be subject to the claims of a future spouse.  So the legacy trust can be used for prenuptial planning (without the consent of the future spouse to any of its provisions). 

Each situation must be examined separately.  But if you are planning to get married in the near future and you are considering a prenuptial agreement, you should also consider the possible advantages of an Ohio Legacy Trust.

Ohio Revised Code §5816.06 requires an affidavit of solvency each time you transfer assets to an Ohio Legacy Trust.  This is a fairly standard provision for transfers to Domestic Asset Protection Trusts in other states as well.  In Ohio, failure to timely file such an affidavit may be used as a basis for an action to set aside the transfer. 

The affidavit of solvency required by Ohio Revised Code §5816.06 must state that:

The transferor is not made insolvent by the transfer

The transferor is not contemplating bankruptcy

There are no pending court actions other than those listed in the affidavit

It is often impossible to sign such an affidavit once you have serious creditor problems.  So this statutory requirement is another reminder to do your asset protection planning before you have any significant creditor issues.

A recent article in the Cleveland Plain Dealer put the spotlight on phantom debt collectors.  The Federal Trade Commission has shut down bogus debt collectors in the past, but this continues to be a significant problem.  If you are in debt, you need to be sure that any debt collection efforts against you are legitimate. 

Anyone who feels they may have been the victim of a bogus debt collection scheme should notify the Federal Trade Commission and/or the Better Business Bureau. 

Many Americans have incurred crushing debt in recent years.  Pressure from legitimate debt collectors is bad enough.  We should certainly not have to tolerate bogus debt collection schemes.

 

A recent front page article in the Cleveland Plain Dealer reminded me of what most of us already know – housing prices are finally rising across the country.  Your home is often one of your most valuable (or certainly one of your most important) assets.  And you should take whatever steps you reasonably can to protect it.  Rising home prices are a reminder:

To check your casualty and liability insurance policies to be sure that you have sufficient coverage.

That so called homestead exemptions may not adequately protect your home.  Homestead exemptions vary drastically from state to state.  Ohio currently has a $125,000 exemption (which essentially translates to $250,000 for a married couple).  Some states are higher; some are lower.  If your home value rises higher than the applicable state homestead exemption, you may want to consider other ways to protect it. 

Rising home prices are also a reminder that asset protection is an on-going process.  Changing times and circumstances require a periodic review of your overall asset protection plan.

 

The recent scandals involving tax evasion by some Americans (who had assets in secret Swiss bank accounts) are still playing out.  The Swiss Cabinet recently announced a new program that would allow about a dozen Swiss banks to provide the United States Department of Justice with information on bank accounts held by Americans.  The Justice Department continues to pursue financial institutions involved in facilitating unlawful tax evasion by U.S. citizens. 

Needless to say, these abuses will now adversely affect many Americans who legitimately hold funds overseas.  There is now more effort in opening overseas accounts; and some Swiss banks will not even accept American clients.  This is not a new story:  abuses by a few often ruin things for everyone.  There are very legitimate reasons for an American to invest funds overseas.  It is unfortunate that this is becoming more difficult.

A recent article by Jeff Sovern and Ira Rheingold in the New York Times explains why consumers have such a hard time fixing faulty credit reports.  A mistake on your credit report can be a big problem for you.  But such an error can be difficult to correct.

The authors point out that the Federal Trade Commission has found that at least 20% of consumers had errors in their credit reports.  A majority of those people see an improvement in their credit scores when the errors are corrected.

But as Jeff Sovern and Ira Rheingold note, credit bureaus are heavily dependent on lenders for both revenue and information.  Consumers have little power over credit bureaus.  Thus, credit bureaus have every reason to favor lender’s interests; and there is little incentive to help a consumer.  This of course does not mean a credit bureau would deliberately report a mistake.  But there is little or no incentive to assist a complaining consumer. 

New laws and regulations may be necessary to better protect consumers from errors in their credit reports.

I am constantly focused on asset protection – – even on vacation!  A week or so ago while on vacation in Hilton Head, SC, I noticed a local newspaper article that reminded me of the huge potential liability you can face from a teenage driver in the family. 

An article in The Island Packet described a new lawsuit stemming from a 2011 fatal automobile accident on Hilton Head.  A teenage girl (Kendall Walton) was driving the car and died in the accident.  Another teenage passenger (who was injured) is now suing the driver’s father – -essentially alleging that the parent is financially responsible for his daughter’s negligence. 

I know nothing else about the lawsuit, and it may or may not be justified.  But the article is a stark reminder that you have huge potential liability for your teenage driver.  And damages from one of their accidents could be catastrophic.  Sufficient insurance (including an umbrella policy) is critical.  Having an overall plan in place to properly shield your assets from creditors is also important. 

Even on vacation, there was no escaping the reminders that catastrophic lawsuits can strike at any time.  Asset protection is critical before such an event occurs.