Asset Protection Planning Should Start Before Claims Arise
The most effective asset protection plans need to be put in place long before a creditors claim or liability arises. Transactions that occur after a claim has arisen are likely to be considered violations of “fraudulent transfer” laws. Another important reason for early planning is that most people don’t understand when the claim or liability actually arises. Once you have received a demand for payment or been served with a lawsuit, it is too late.
It is a common misconception that the only consequence of late planning is the voiding of what is considered a fraudulent transfer. Instead, both the debtor and the person who aided in the fraudulent transfer can be held liable for attorney fees incurred by the creditor involved. The debtor may also lose any chance of discharging that particular debt in bankruptcy.
Asset Protection Planning Should not be a Substitute for Insurance
Asset protection planning should never be considered a substitute for liability or professional insurance. It is meant to only supplement such insurance. Asset protection plans do not deter lawsuits, nor do they pay for legal fees required to defend against a lawsuit. If you are sued, your insurance company will be responsible for defending the lawsuit, as well as paying to settle.
Personal Assets Should Not be placed in Business Entities
The general rule is, trusts are for personal assets and business entities are for business assets. This means that various business entities, such as corporations, partnerships and limited liability corporations, are meant to be vehicles for business assets only. Whereas personal assets should be placed in some form of trust.