It is important for debtors to have strategies for protecting their valuable assets from potential creditors, just as it is important for creditors to have techniques for collecting debts. Furthermore, just as creditors are required to follow the laws and regulations that govern their debt collection practices, debtors must be careful that their asset protection strategies do not cross the line into fraudulent transfers.
The major concern in deciding when to start asset protection planning is being sure to avoid the appearance of a “fraudulent transfer.” With the help of an experienced and knowledgeable asset protection planning attorney, you can avoid the pitfalls that can get you in trouble, while you start asset protection planning for you and your family.
Start planning prior to creditor’s claims
There are many techniques for accomplishing asset protection, but they are only effective before a creditor’s claim or some other financial liability arises. The transfer of assets after a claim has arisen may be considered fraudulent. The most common example of an illegal transaction is when a debtor tries to "sell" everything to a relative for very little, solely to keep the property out of the reach of creditors.
Late planning may have serious consequences
Many clients believe that the worst that can happen is a court will undo or reverse the fraudulent transfer, leaving the client no worse off than before. In reality, both the debtor and the one who received the property, can be held liable for any attorney’s fees incurred by the creditor in collecting the debt.
What is the best way to protect assets?
Asset protection first requires looking at the nature and value of your assets and then rearranging them in a way that will maximize their protection from loss. The purpose of asset protection is not to evade taxes or defraud creditors. Instead, it simply allows you to prepare for financial situations that could possibly occur, in order to help preserve your estate for the benefit of your family.
Possibly the most common estate planning tool for accomplishing this goal is a trust. When assets are transferred to a trust, they are effectively removed from your estate. As a result, those assets are not subject to estate taxes upon your death. There are different types of trusts, with their own benefits, which can be tailored to meet the different needs and goals of each client. Discuss all of your options with your estate planning attorney to determine what will be best for you and your family. Generally speaking, trusts do not protect personal assets. But, under some circumstances an irrevocable trust may provide protection of certain assets. If you also have business assets, those need to be protected by a business entity, such as a partnership or limited liability company.
If you have questions regarding trusts, or any other asset protection planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
To learn more, please download our free Protect Your Nevada Assets From Lawsuits here.