As a business advisor and attorney working with many closely-held businesses, including healthcare professionals such as doctors and dentists, I commonly field questions from clients and make recommendations to clients on the concept of asset protection. Each client that I talk with may have a different motivation for raising the question, or recommendations may vary depending upon the specific facts and circumstances of the client involved. But, at the end of the day, the concept and implementation are generally the same for each, with very limited exceptions. This blog post discusses the asset protection concept in general. And, I will be following this blog post up with a more detailed discussion on each of the topics.

Background Regarding Asset Protection

As discussed, I routinely field questions from clients regarding asset protection. And, in some instances, I hear from clients that they have been approached by other professionals regarding restructuring their assets and businesses for asset protection purposes. Unfortunately, in many of those instances, the third-party professionals that are recommending asset protection plans are recommending plans that are much more complicated than necessary. It is really hard to justify or understand why they would receive such a recommendation, other than the fees involved for implementing that particular plan, benefit the person recommending the plan. As the old saying goes, they are using a sledgehammer to crack a nut, when really the client needs a scalpel to precisely plan for and protect against the unforeseen, unexpected, and unfortunate circumstances that may arise. From my perspective, an asset protection plan needs to be customized to your particular facts and circumstances. And, that asset protection plan can be implemented over a period of one to two years with simple straight forward steps.

Steps of an Asset Protection Plan

I generally refer to my recommended asset protection plan as the peeling of an onion. The idea is that we place many layers over the core to make it difficult for any third party, including creditors and judgment lien holders, to ultimately reach the core. By adding legitimate lawful layers around the core, we ultimately discourage and wear out the third-party creditors and judgment lien holders from ultimately continuing their efforts to reach the core. So, what are those steps?

1. Insurance
2. Formation of Entity
3. Following Corporate Formalities
4. Educational Savings
5. Retirement
6. Transferring/Titling Assets in Spouse’s Name
7. Life Insurance
8. Annuities
9. Gifting
10. Spendthrift Trusts
11. Seasoned Gifting with Spendthrift QTIP Trust
12. Family Limited Partnership or Family Limited Liability Company
13. Domestic Asset Protection Trusts
14. Offshore Asset Protection Trusts

Conclusion

Depending upon your specific goals, facts and circumstances, I would modify the steps above to ensure the most cost-effective, efficient, and solid plan. And, this may include adding some steps that are not listed above. But, either way, it is important that this asset protection plan aligns with your business and your personal affairs, including your estate plan, and overall family planning. And, as discussed above, there is no cookie-cutter approach and there is no need for an overly complicated plan when we can achieve the stated goals with simple common sense, and cost-effective steps. More to come…