Don’t Make These Asset Protection Mistakes
Asset protection is not only a viable and recognized legal strategy to protect assets from creditors, but it’s also a very smart thing to do. Even if you aren’t a millionaire, you still may have assets that creditors could reach if a judgment were ever entered against you.
That said, there’s good asset protection planning, and bad asset protection planning. Doing it the wrong way can often be worse than not doing it at all.
Many people take the “do it yourself” asset protection route. They transfer accounts and property, re-title assets, or change names on accounts or corporation, all because of advice they have read on the internet.
Here are some of the most common asset protection mistakes that people make when they try to protect property by engaging in asset protection.
Transferring property when there’s a claim or lawsuit pending – The reason why it’s advisable to do asset protection early is because when assets are transferred when you already have a lawsuit pending against you—or even when it looks like one will be filed against you in the future—those transfers can be undone. They turn into what the law considers to be “fraudulent transfers.”
Transferring assets because you work in a high-liability business and could get sued at any time is fine. Transferring them after someone has said they are going to sue you or when it looks like a lawsuit could come at any time could be considered fraudulent.
Transferring everything to your spouse – If property is acquired during your marriage, and is titled in both you and your spouse’s name, it is generally exempt from you or your spouse’s individual creditors. But by transferring those assets to your spouse, you are losing that exemption, subjecting the assets to your spouse’s creditors. Your assets are actually less protected than they would be had you just kept them jointly with your spouse.
Putting assets in a revocable trust – Only irrevocable trusts have the requisite creditor protection. As a general rule, if a trust allows you to access, use, or control the property in the trust, a creditor can reach it.
Hiding assets or using offshore investments – Any scheme to hide assets is destined to fail. Worse, many people confuse “hiding” with “protecting.” Engaging in complex schemes to hide the location of assets does not mean that when and if they are found, that they are protected. All you are doing is hiding, when you could be spending your time and resources protecting.
“Selling” assets to protect them – Selling valuable property to a friend or relative for $1 is not asset protection. It is simply a fraudulent conveyance. There are certainly legitimate situations where you may sell something for nothing. This may happen in business transactions, or deeds pursuant to court orders, or in settlement agreements. But doing it just to pretend the assets have been legitimately sold to friends or family could lead to the sale being undone by a creditor.
Make sure your estate and assets are safe, but make sure you plan early and correctly. Contact Tampa business, asset and probate attorney David Toback to discuss a comprehensive asset protection plan.