Thursday, July 9, 2020
There is a lot more to estate planning than saving taxes. It is also about managing and protecting your assets against future creditors, both for you and your beneficiaries. Economic turmoil is often followed by a spike in litigation by individuals seeking to recover some of their losses and by governments seeking to gain back the profits made.
If you receive funds from a person or business that files for bankruptcy, some or all of what you have been said can be drawn back into the bankruptcy court.
The key to understanding when your assets might be vulnerable to attachment during a lawsuit is the Fraudulent Conveyance Laws. These laws render a transfer void if there is fraud during the transfer. Fraudulent transfers are bait for creditors.
Receiving reasonably equivalent consideration for any transfer of assets avoids having your transfer treated as constructive fraud. In estate planning, reasonably equivalent consideration includes:
(1) Funding a protective trust at death to provide for a spouse or children
(2) The transfer of assets in return for an interest in an LLC or LLP, or
(3) A transfer that exchanges for an annuity (or other interest) that protects the principal from claims of creditors.
In order to maximize your asset protection, you should draft and fund protective trusts for your spouse, children and other beneficiaries.
See Matthew Erskine, Three Estate Planning Techniques That Protect Your Assets From Creditors., Forbes, June 25, 2020.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.