Asset Protection FAQs

Any person who has a positive net worth that they wish to protect from future lawsuits or any professionals who have exposure to professional liability should consider how their lives would be affected if they lost everything tomorrow. Those who are interested in protecting what they have already earned from future lawsuits and creditor claims include doctors, lawyers, accountants, architects, home builders, land developers, business owners, owners of rental properties, executives, persons sitting on any board of directors, retirees and virtually anyone who desires to preserve their accumulated wealth for their and their family's use. Other common uses of this type of planning are for those who anticipate selling or who have recently sold their business, those who are considering marriage or remarriage, or anyone who anticipates receiving a significant inheritance.

Today's society is very litigious indeed. Some of most common types of lawsuits arise from failed marriages, automobile accidents and business activities. With the divorce rate over fifty percent, we can safely estimate that half of us will end up divorced at least once. Since virtually every person of even modest means has one or more cars, we can also foresee a large number of personal lawsuits being filed as a result of car accidents. In the areas where my two offices are located, the average age is around forty and a middle executive earns about $150,000 per year. Should you have an automobile accident, the claim for lost wages alone would be over $3,750,000 assuming that executive would work to age sixty-five and have no increase in his or her salary. Business claims have been increasing over the past years and no business is free from claims based on slip and falls, assaults in parking lots, sexual harassments claims, injuries on business premises, malpractice and negligence claims, just to name a few. Even those who have sold their business find that the new owners change the chef, menu, business operating practices or types of goods being sold, and then when the business fails, the sellers are being sued by the buyers to obtain the purchase money back based on the representations or warranties contained in the contract.

No. Those who have retired or are in a low risk profession will still be confronted with personal lawsuits including auto accidents, divorces, slip and falls, and workers falling off the roof or getting injured on your real property. Anyone fortunate enough to have acquired a net worth in excess of one or two million dollars certainly does not want to have their financial security jeopardized and realize that it may impossible for them to replace the lost wealth in the number of working years they may have left. In addition, the business opportunities that they pursued earlier in their careers will most likely not be available if they have to start over again at age forty or fifty. These individuals are more concerned with protecting what they have already accumulated than any other objective.

The past several decades have brought an explosion of litigation from simple tort cases, to complex medical malpractice, product liability and environmental claims. Not too far back, people would never consider suing their family physician; however, today people are always looking for the easy dollar and will file suit against anyone for virtually any reason that they or their attorney can dream up. Who would have thought that a lawsuit for coffee being served too hot would result in a verdict of three million dollars and a settlement around one million dollars? The United States has over 70% of all attorneys worldwide and 94% of all lawsuits. This has created a sense of entitlement where everyone believes that they should be compensated by the court system for anything that goes wrong in their personal or business lives. This entitlement attitude has resulted in a Robin Hood situation where we take from the rich to give to the poor. No one sues poor people because they don't have any money to pay the claim, so the vast majority of lawsuits are directed against successful and affluent individuals who, at best, will lose some of their wealth just trying to defend a lawsuit and, at worst, will have a judgment entered against them which will result in the loss of their accumulated wealth. The problem continues to grow and is fueled in part by contingent legal fees and the fact that in the US each side pays their own legal fees. This provides no deterrent to a claimant with a questionable claim as they don't have to pay their attorney and if they lose they are not held responsible for the other side's legal fees and expenses either.

This is definitely no myth. Physicians of all types are now being routinely sued many times for matters they have little or no control over. The typical doctor can expect seven lawsuits during the course of his or her career. Any one of these suits could easily wipe them out financially since most doctors cannot obtain malpractice insurance in excess of one or two million dollars at any price. Worse than being sued a lot is the prospect of losing the lawsuit and having to pay the judgment. The average malpractice award in 1999 was just under $4 million dollars. Since most doctors only carry one million dollars in malpractice insurance, their personal assets will be used to pay the judgments. The malpractice awards have since escalated drastically and in 2002, the two largest medical malpractice awards were $94.8 million and $91 million yet the non-economic portion of the awards which would have been subject to a cap was only $760,000. The major portion of both of these awards was for lifetime care. Two years later, in 2004, the highest medical malpractice award was $111.7 million dollars and no punitive damages were included in this award. The largest 2005 medical malpractice award was $606 million for the family of a Texas man who died from a chemotherapy overdose and the second largest was $212.58 million for brain injury to a newborn during a vaginal birth after Caesarean. The medical community is truly in a crisis situation. Medical specialists such as surgeons, neurosurgeons, cardiologists, obstetrics and gynecology, as well as any doctor who treats minors, will be confronted with more claims, higher awards and a far larger chance of having the jury award exceed the limits of their insurance, putting their personal savings, house and other assets at risk.

Yes, insurance is always the first line of defense and part of virtually every asset protection plan; however, claims can, and frequently do, exceed the amount of available insurance which means that you must pay the remaining judgment from your personal savings, investments or equity in your house. In addition many insurance companies themselves are unable to pay the large jury awards which are being given and end up closing down and filing bankruptcy. Another problem encountered with insurance is that no “all risk” policy exists and even when you are sued, you may find that the insurance policy has a stated exception for that type of claim, thus relieving the insurance company of having to defend or pay the claim; once again forcing you to pay the claim from your accumulated wealth.

The most protective solution is the asset protection trust. Asset protection trusts can be created offshore in countries which have more favorable legislations pertaining to lawsuits or can be created in the United States. Currently there are about thirty countries and eight states with more favorable asset protection laws. Most advisors are still leery of using domestic asset protection trusts as no significant court has yet ruled upon their effectiveness. Offshore trusts, on the other hand, are outside the reach of US courts and the laws in many offshore jurisdictions are far more favorable than the laws in the US which help promote litigation.

Sure, but before I do that, you have to understand that the laws are substantially different outside the United States. Some of the most favorable countries have laws that prohibit contingent legal fees, that require the losing party to pay the prevailing party's legal fees, require a cash bond for the plaintiff to be able to file their claim which bond can be used to reimburse your legal fees if you prevail, have shorter statutes of limitations, more stringent burdens of proof and, most importantly, shorter statute of limitations.
Back to your question, once these more favorable laws are considered, it is simply a matter of choosing a country with laws more favorable to you and then creating a trust under those laws. Should someone want to sue your trust, they will need to file suit in the country where your trustee is located and the more favorable laws of that country will typically govern the litigation. The trustee's job is to protect your assets from future creditor claims and to assist in this, the trustee may establish one or more limited liability companies or family limited partnerships. Once your assets have been transferred to your protective structure and the required time has passed, the trust assets will be out of reach of your creditors. The laws in these various countries and the eight states are not the same and need to be carefully examined to make sure that you will be getting the highest degree of protection possible.

No. While some believe that a higher degree of asset protection is obtained by physically moving assets offshore, most clients prefer to have their trust create a US (or offshore) limited liability company (LLC) that will name them as the manager. They can then keep the assets in the US with their favorite banks, brokers or trusted financial advisors and have successfully separated ownership from control.

Another excellent question! With a properly drafted asset protection trust, the trust will be “tax neutral” and will not increase or decrease any income, estate or gift tax. This is absolutely essential to the planning process as the loss of part of your estate in the form of taxation on transfers to the structure would defeat the purpose of creating the asset protection structure in the first place. Fortunately, it is not difficult to properly plan for this tax neutral result for assets going into or out of the structure.

Due to fraudulent transfer laws, it is imperative that this type of planning be completed PRIOR to the existence of any claims. Notice that I said “claims” not “lawsuits” or “judgments”. This is because the fraudulent transfer laws in all fifty states provide that you can't transfer your assets out of your name with the intent to hinder, defraud or delay a creditor. You are also prohibited from incurring debt or making transfers which would render you insolvent. The existence of a possible claim may defeat your ability to pursue this type of planning and you would therefore be wise to start sooner rather than later, especially if the skies are clear and no lawsuits are pending or threatened. The key is advance planning.

Not necessarily. This is a fact-dependent situation which needs to be thoroughly examined. We recognize that some clients, such as doctors, may always have possible claims against them and in these instances, we need to investigate the claims, as well as the client's assets and the existence of insurance, and depending on those factors, may still be able to proceed with the planning. However, it is far more preferable to be able to proceed at an earlier time when no possible claimants exist.

Contact Robert D. Gillen via phone or email to schedule a time for a telephone or office consultation to discuss your specific situation and any questions or concerns you may have. The cost of the initial consultation, which may last two to three hours, is $850. The fee is applied to the cost of the asset protection planning if you elect to proceed within thirty days of your initial consultation.