The answer to this question is a resounding: NO!

It certainly isn’t illegal to have an effective asset protection plan. Everyone has the right to protect their hard earned money and property and, if the plan is properly set up by a qualified asset protection planner (with assistance from a CPA and attorney) while both financial and legal seas are calm, then an asset protection plan, although not completely indestructible, saves people a lot of future grief.

It should be remembered, however, that a creditor can challenge implementation of an asset protection plan simply by alleging that transferring of assets to other people or entities or the investing money in exempt assets (such as annuities) constitutes a fraudulent transfer or fraudulent conveyance. Their argument would be that these conveyances were implemented with the intent in order to hinder, avoid, or delay creditor collection. Therefore, any asset protection conveyance can be challenged as “fraudulent”, and, in fact, can be challenged for four years even if there wasn’t any obligation or duty to the creditor when the asset protection plan was first implemented.

There is a bad implication associated with the terms “fraudulent transfer” and "fraudulent conveyance”, and many wrongly confuse these technical legal terms in asset protection law with the torts of common or criminal fraud. This results in some people fearing that to have an asset protection plan could result in their being held liable for damages in fraud, or that they could even wind up being charged with criminal fraud.

Happily, nothing can be further from the truth. A number of court decisions in both the state and federal level have held that a fraudulent conveyance in order to avoid creditors’ claims is neither tortious fraud nor criminal fraud. As a result, any creditor claiming that part of an asset protection plan involved a fraudulent conveyance cannot charge a debtor with the crime of fraud nor would he be able to seek additional civil damages based on the common law theories of fraud, deceit, or misrepresentation.

Consequently, having an asset protection plan is unlikely to increase anyone’s liability, and it’s doubtful that it would get anyone in trouble. In any case, even if part of an asset protection plan is successfully challenged as a fraudulent conveyance, a court will only put the debtor back into the same legal situation he was in prior to his asset protection plan being implemented.

In conclusion, the following are some of the mistakes people have made in setting up an asset protection plan and, as a result, found themselves in trouble:

· Failing to understand the real purpose of Asset Protection. Bear in mind that having asset protection does not make anyone “judgment proof.”

· Waiting until the last minute to begin planning. As stated above, the safest bet is setting up a good asset protection plan when both the financial and legal seas are calm.

· Assuming that it is too late to protect assets. This is wrong, because it is never too late to improve protection. Anything is better than doing nothing.

· Assuming that creditors are either stupid, lazy or both. The axiom “never underestimate your enemies” rings very true here. No one should ever underestimate the skill and intelligence of their adversaries. Everyone should take it for granted that their creditors and their attorneys are not stupid.

· Failing to comprehend a business’ vulnerability. It has to be remembered that anyone owning shares of common stock in a professional practice are vulnerable to creditor attack.

· Failing to comprehend what is meant by fraudulent transfers and conveyances. Regardless of what anyone has read or heard, assets cannot be protected by just signing them over to relatives or close friends.

· Confusing estate planning with asset protection. A good part of estate planning is having asset protection is part of estate planning. However, a living trust or will does nothing to protect anyone’s assets from creditors.

· Handing over control of assets to someone else. There who have read or had informed that the easiest asset protection plan is just handing over control of their wealth to someone else. This is not true, and anyone who does this will wind up getting badly burned by it.

If you would like more information regarding asset protection, trusts, family limited partnerships or the subject of this article please call or email our office.