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Old And Cold Asset Protection Plans

By Rob Lambert - Email Editor

Date: 06-Dec-2005

“Old and cold” refers to an Asset Protection Plan that is set up many years before any claims or litigation is known. This normally relieves the settlor from claims of fraudulent conveyance. If there is a conveyance, it takes place when the plan is funded, not years later when problems might come up.

Having a properly implemented Asset Protection Plan in place starts the statute of limitations running the moment the plan is funded. This is cheap insurance. Therefore, you shouldn't wait until the world starts to collapse around you to implement your plan. The plan should be done when you are financially healthy and when both the financial and legal seas are calm.

Here's a hypothetical situation. There are two men who have offshore Asset Protection Trusts. Now, you know there is nothing illegal about this; you can move your assets offshore (provided, of course, that you do so legally). One man set up his Asset Protection Plan back in 2001, the other just three months ago. Then, out of nowhere, both of them wind up becoming defendants in a lawsuit. Although lawsuits usually take some time, this is a hypothesis, so let's say two months later both have judgments against them for $1 million.

As mentioned earlier, both have Asset Protection Plans in place. Both the settlors' assets in the plans are probably unreachable. However, the creditors can ask that the transfers to the Trusts be set aside as fraudulent conveyance. (By the way, there isn't anything unusual about this.)

For the man who set up his Asset Protection Trust in 2001, the court will probably find that the transfer was made four years previously, when he clearly had no debts and sufficient income to meet his needs, and therefore, the transfer wasn't fraudulent.

For the man who set up his Asset Protection Trust three months ago, there may be problems. Did he set the Trust up with the knowledge that the lawsuit was pending? Did he set it up with the intent to defraud his creditors? Did he have enough income and no debts? These questions, and more, would probably be asked in court.

Chances are the creditor won't wind up getting anything. But why have the hassle of having to go through all of this? The term "old and cold" Asset Protection applies here.

If the gentleman with the three-month-old plan had established it earlier and had it in force long before any attack took place or before any creditors become known to him, this could have been avoided. Once again, having an “old and cold” plan in place while the financial and legal seas are calm insulates this person from the claim that the plan was created with the intention of defrauding an existing and known creditor.

Furthermore, having an “old and cold” plan in place could make a plaintiff's lawyers decide that it won't be worth the battle because it would cost more to pursue your assets than the potential recovery.

For those that are considering Asset Protection this year, you still have time…

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