All of the assets relating to your business operation do not necessarily have to be in the same company.  There may be perfectly valid business reasons to have real estate, equipment and/or other assets in separate entities.  The following chart provides an example of a possible business structure.

Many assets in the above structure are not part of the operating company.  So a judgment against the operating company may have no impact on the other assets. 

Each situation of course has to be examined on its own.  Asset transfers can have tax consequences.  But there can be valid business reasons for using multiple entities – – and this may provide significant protection for many of the assets utilized in your business.  

"Asset Protection" is not a substitute for insurance. In fact, insurance should be an integral part of protecting your assets.

There are many kinds of insurance. Each risk has to be evaluated on its own and a reasonable decision has to be made about the amount of appropriate insurance. For example, if you have teenage drivers in the family who are using your car, I would strongly recommend increasing your liability limits and making sure you have an umbrella policy.

Even when you have a lot of insurance, it is not necessarily a substitute for additional asset protection planning. Events can occur for which there is no insurance coverage. And damages could exceed policy limits.

All of this means that insurance coverage and other asset protection techniques go hand in hand. One is not necessarily a substitute for the other.

A front page article in today’s Wall Street Journal as well as an article by Lynnley Browning and Julia Werdigier in today’s New York Times report that Swiss officials have agreed to let banks release more information on the holdings of their American clients. 

This most recent development is yet another step in a process that is making it increasingly difficult for Americans hide assets in Swiss accounts and unlawfully evade taxes on those assets.

As I frequently explain to clients, there is absolutely nothing wrong with having a Swiss bank account or other offshore account. But you have to comply with all applicable reporting requirements.

Asset protection planning (and estate planning) frequently involves the use of one or more trusts. Possibilities include an offshore trust, Domestic Asset Protection Trust, irrevocable life insurance trust and various other kinds of trusts. 

Most of these trusts are designed to last for many years. It is therefore important to give the trustee the flexibility to adjust to changing circumstances. Many things can change during the life of a trust. Among the many changes that a trustee may be faced with are:

·         Beneficiary’s creditor problems

·         Changes in family circumstances (including divorce)

·         Cost of living

·         Legal changes

A person setting up a trust is often inclined to impose very specific requirements on the trustee (for example, making specific distributions to beneficiaries each year). But one or more of the changes mentioned above could make a particular distribution problematic. Giving your trustee flexibility and discretion often makes the most sense. This is why I frequently remind my clients that who you choose as trustee of a trust can be just as important as the trust documentation.

In any event, it is important to keep in mind that no matter what kind of trust you establish, you are going to have to give your trustee a certain amount of flexibility to react to future changes.

In a post on February 8, 2012 I referred to an excellent article by Pauline W. Chen, M.D. She described how involvement in a medical malpractice action can negatively impact a physican’s way of practicing medicine.

Dr. Chen recently published another article in the New York Times that is also noteworthy. She explains how a medical malpractice lawsuit can be terribly stressful for a physician – – and how it can negatively impact a doctor’s ability to care for patients. These articles remind me that our system of compensation for medical errors remains desperately in need of further reform. 

Dr. Chen points out that some specialists, such as neurosurgeons, can average as much as one quarter of their professional lives embroiled in lawsuits. Even if there is no ultimate payment in many of these actions, the stress on the physician can take a heavy toll.

Developing a meaningful asset protection plan will not relieve all the stress of a medical malpractice claim. But it can certainly help. As I have mentioned before, a meaningful asset protection plan can provide some emotional peace of mind as well as potential financial benefits.

A fascinating article by Julie Satow in the April 28, Sunday New York Times describes a New Yorker whose entire $40 million estate will likely go to the government because he died without a will. This case is somewhat unique because Roman Blum, age 97, apparently died with absolutely no living relatives. But Mr. Blum could have directed his $40 million estate to go to friends, charities or anyone else he wanted. But with no will, his entire estate will likely go to the government!

Mr. Blum was a Holocaust survivor and he made a fortune during his lifetime. It is amazing that he seems to have done no estate planning. This is another example of how important it is to take the necessary time – – and get the necessary professional help – – for both estate and asset protection planning. Doing nothing can literally result in losing everything.

The possibility of a malpractice lawsuit is a constant concern for most physicians. A malpractice lawsuit can have serious personal and financial consequences. And physicians in private practice face another financial worry. They are running a business; and that business (like any other business) can face a sudden, serious downturn or even go bankrupt.

A recent on-line article by Parija Kavilanz at CNN Money highlighted the fact that private practice physicians face ever increasing business risks.  Some have even been driven to bankruptcy. 

Given the risks faced by physicians in private practice, those physicians should all be taking steps to protect both their personal and business assets – – to the greatest extent allowed by applicable law. 

 

Here are some of the people who should at least consider setting up an Ohio Legacy Trust:

  • Business owners
  • CEOs and Directors
  • Physicians
  • Accountants
  • Attorneys
  • People considering marriage
  • Others who are willing to part with total control of a portion of their assets

The following chart (prepared by my partner, Paul Fidler) provides some general guidelines about whether you might benefit from an Ohio legacy trust. The chart would also be applicable to domestic asset protection trusts in other states as well. 

 

 

The link below provides some general information about Ohio legacy trusts. The material is from a presentation given by my firm on March 26, 2013 (the day before the Ohio Legacy Trust Statute took effect). 

www.ssrl.com/attachments/download/106/Ohio%20Asset%20Management%20Modernization%20Act.pdf

This new kind of trust is not for everyone. But for some Ohio residents, it could be a valuable way to protect a portion of your assets.

The Ohio Legacy Trust Act (part of Ohio House Bill 479) becomes effective on March 27, 2013.  Ohio will become one of approximately 15 states with what is commonly called a Domestic Asset Protection Trust Statute.

Ohio House Bill 479 also increases the Ohio homestead exemption and makes other changes that offer better asset protection alternatives in Ohio.  This new law – – coupled with changes to Ohio’s LLC statute that were made last year – – make Ohio a much better asset protection jurisdiction than it was a year ago.