Do Not Get Suckered by the Asset Protection Racket

Clients frequently ask about “asset protection” strategies. These plans may include offshore trusts, Nevada or Alaska trusts, irrevocable trusts or various insurance products. Many of the clients expressing concern about exposure to tort or business liability are reacting to investment pamphlets or seminar presentations trying to scare people into signing up for services. Except for obstetricians and drill-rig operators, asset protection should not be a major goal in estate planning. Companies promoting asset protection products are generally trying to take advantage of their targets’ fears and insecurities.

When clients start talking about asset protection from law suits, the first question should be whether the client has a significant risk of being sued for a large uninsured liability. Some doctors and other professionals in high-risk activities could be sued for millions, but that risk is too small for most clients to make it a planning objective. A truck driver has a high risk of being involved in an accident that could leave one or more others dead or severely injured. However, adequate insurance is a better way to address that risk than trying to high assets.

An offshore trust is often touted as a way to safeguard assets from attachment after a lawsuit. Although assets held by a trustee in the Caymen Islands or on Nauru would be difficult for a creditor to grab, they might also be difficult for the owner who put them there to retrieve. The question the client has to consider is how much trust he or she wants to put in a stranger in a strange land. Furthermore, a U.S. judge may not have jurisdiction over assets in the Caymens, but the judgment debtor who put them there would be under the judge’s control. The debtor who ignores the judge’s order to repatriate and pay over the assets will be held in contempt and might even be put in jail.

Trusts in debtor-friendly states are subject to the same limitations. They may be hard to get at, but if the debtor is subjected to questioning under oath by the creditor, it would be unwise to commit perjury or refuse to answer questions about what happened to significant property.

The best asset protection does not require exotic financial vehicles or foreign bankers. Adequate liability insurance works far better than trying to hide wealth and allows the estate to be enjoyed, rather than secreted.

Revocable living trusts, powers of attorney, and wills are highly cost-effective and can be used to transfer wealth from generation to generation efficiently and with conformity to the testator’s desires. Leave offshore accounts and money laundering to the criminal element. Minimizing court supervision and tax burden can be achieved very reliably and at reasonable expense. What is important is to choose a competent, experienced attorney with a good reputation.


John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
©2011 John B. Payne, Attorney

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