"Asset Protection" Planning in New York

"Asset protection" planning seeks to protect a person's property from the claims of future creditors.  You should be concerned with planning to protect your assets, if you are a professional, executive or small business owner.  After all, it makes little sense to construct a comprehensive estate plan and then lose a significant part or all of the assets you have accumulated over a lifetime to a litigation judgment.  Yet, that is what too-frequently happens in this litigious society. Reason: If an individual owns a small business as a sole-proprietorship or general partnership, all of his personal assets are put at risk to a potential claim of creditors.  Most small businesses will be forced into bankruptcy from a single lawsuit.  Likewise, a corporate executive who has accumulated stock, real estate, and bank accounts in his own name can lose it all in the split-second of an automobile accident.

"Asset protection" planning is designed to prevent these disasters.  What techniques are used to accomplish this purpose depend on the unique facts of each case.  The solution could be as simple as purchasing the right liability insurance.  Or, it may involve the incorporation of a small business, or the transfer of financial assets to a family limited partnership.  If appropriate, it could require specialized trusts or other business entities. Each technique has its own benefits and drawbacks.  We analyze the client’s assets, and his business and lifestyle to arrive at a plan that is suitable and effective for the client and his or her family.  Then we draft the necessary documents, form the business entities, transfer assets and fund appropriate vehicles to bring the plan to life.  

Planning to preserve a client's assets from the claims of future creditors is an important part of comprehensive estate planning.  However, any steps taken in this regard must have an independent business purpose if it is to withstand the claims of creditors.  The Index of Estate Planning Practice Areas below is a portal to estate planning practice topics and articles.  We work with our clients to integrate the protection of their estate within a comprehensive estate plan.

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Important Bankruptcy Law Update - The 2005 Bankruptcy Law has greatly affected the viability of self-settled trusts created to protect the assets of the settlor from the claims of his or her creditors.  The new law adds a separate "clawback" period for self-settled trusts and provides that if assets are transferred to either a so-called domestic asset protection trust, foreign asset protection trust or "similar devise" for the purpose of shielding them from any creditor's claims and the transfer takes place within 10 years from the date of the filing of the bankruptcy petition,  the transfer may be reversed in Bankruptcy Court and the assets brought back into the debtor's estate..     

Some observations:  The 10 year "clawback" is the longest jeopardy period in any United States jurisdiction, even longer that the period provided in the Uniform Fraudulent Conveyance Act or under New York law for Fraudulent Conveyances.  (The typical state limitation period is about four years.)

What is a "similar devise" under the new law?  Does it include insurance policies or annuities?  The definition is not provided in the law and may be the subject of future litigation until the courts make clear what the term will mean. 

What the new law means is that asset protection planning must be considered at a very early stage in the career of a professional, executive or businessman, since the "clawback" period has been extended so long after almost any suspect transfer and includes both present and future creditors.  With the value of the asset protection trust now so fundamentally restricted, a professional, businessman or executive seeking to protect his family from frivolous law suits and disastrous judgments needs to consider other legal vehicles and techniques to provide the needed protection he or she seeks. 

A Major Consideration for Action Now:  Any suspect transfers to self-settled trusts made prior to the effective date of the new law are not grandfathered. That is, the new law affects all claims of creditors, present, past or in the future.  So, if you have established a self-settled trust of any kind in the past, the terms of the trust and the circumstances under which it was created should be reviewed to determine what remedy a present or future creditor may have against the assets of the trust.  If caught by the terms of the new law, the transfer of the assets may be reversed in Bankruptcy. And, that reversal can have major tax consequences, as well.

 

                                            Index of Asset Protection Planning Topics

|   Business Planning for Asset Protection   |                               |  The Use of Family Limited Partnerships  |

|   Asset Protection Trusts     |                                                          |   Liens on Tenancy By The Entirety Property  |

                                                       Index of Estate Planning Practice Areas

| Wills,Trusts and Beyond  |                                                        | Estate Planning Under the 2001 Tax Act |  

| Estate Planning for the Non-Traditional Family |                   |  Business  Succession Planning    |

Copyright © 2007 STEPHEN C. SILVERBERG, PLLC  All rights reserved.
Last modified: December 27, 2007

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