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Timing Asset Protection Planning

by Douglas Lineberry on September 30, 2005

A prospective client contacted me recently to ask about asset protection planning. They (the prospective client and spouse) were interested in planning that would protect their personal assets and residence from claims and creditors that might arise because of the spouse’s high risk profession.  When I say “high risk”, I mean people like doctors and dentists, who are generally the people that get sued when bad things happen to others.  They are perceived as having the “deep pockets” to pay the claim, no matter how frivolous the claim or how reasonable and diligent the doctor or dentist was.

I quickly learned that the prospective client had already been served with a summons and complaint, and the desired planning was for protection from the current lawsuit. The question then was whether we could do any planning to protect their assets from the plaintiff.

Asset protection planning is essentially a form of insurance. You have to do it before bad things happen or it won’t help you!

You have to look at asset protection as insurance. Let’s say your house is on fire – is that the time to call the insurance agent and get a quote, or should you have done it well before your house began to burn? Every state has a set of statutes that bar fraudulent transfers (I’ll write more in another post about the fraudulent transfers laws and what they actually prohibit).  Because of the fraudulent transfer laws, asset protection basically works the same way as fire insurance. Once the claim has been made against you, transferring your assets to protect them from the claimant is not effective. You must be more forward-looking about asset protection planning.  The most successful asset protection plans are put in place when there are no claims against you or no circumstances that you know of that may possibly lead to a claim.

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