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The Best Times For Asset Protection.

By Rob Lambert - Email Editor

Date : August 28, 2008

Dear Valued Reader,

Sometimes it is good to NOT implement Asset Protection.  Sounds heretical, particularly from me, a man who knows we live in a hostile world in which EVERYBODY should be protected.

Well, sometimes Asset Protection backfires and can cause more trouble than it is worth.  I have harped on this issue in many past newsletters and won’t beat it to death here.  The bottom line is that rooming with Bubba, as the ultimate price of Asset Protection, just isn’t worth it.  This doesn’t mean that you can’t or shouldn’t do planning when things are heating up; it just means that you need solid advice when walking the line.

Here are some key life events that should trigger the “Asset Protection urge” which we all feel at one time or another. (The more the better in my mind!).  Some of these life events are the perfect times to implement protection. 

Bankruptcy 
One of the all time great times to implement a plan is the day you emerge from a chapter seven bankruptcy.  You are sitting, discharge in hand with, hopefully, a bright future ahead. This is probably the only time in your life that you can say with certainty that your have no unidentified creditors out there.  It is probably the all time safest and easiest day to implement a plan.

Marriage 
Before a marriage starts is another great time to do Asset Protection.  Often a plan can be structured to keep your separate property separate and also protected, even from your potential ex (now your betrothed).  Sometimes an Asset Protection Plan is combined with a pre-nuptial agreement; however, more often than I would like to admit, the client decides to pass on the pre-nup.  WHY?  Because a traditional pre-nup is akin to saying to your wife or husband-to-be, the person you have sworn your undying loyalty too and promised to share and meld your lives into some magical cosmic fur ball, that you don’t trust them.  Most of the time, the wealthier spouse realizes that the marriage will soon lose its passion once the money issue hits the table.  Imagine telling your soon to be third wife, 20 years your junior, that you need her to sign a few papers before you walk down that isle.   Instead of getting the millions she expected when she started dating you six months ago, the pre-nup says she gets a few hundred grand if she sticks around for a while and doesn’t cheat on you.  The rest of the money goes to your kids who are often older than she is.  She is likely to slap you and take her chances elsewhere where she will at least get somebody her own age who can satisfy her with something more than a trip to Tiffany’s. 

Divorce 
When a marriage ends is also normally a great time to consider Protection.  Once the divorce is over, you are typically worn out and sick and tired of fighting.  You never, ever want to wake up again worrying about losing everything again.  If you emerge from the process with two nickels to rub together, and indeed, even if you don’t, this is one of the few times in your life that it should be pretty easy to identify your future risks.  In addition, you are probably soon to be on the prowl again.  Sometimes I think that divorce follows marriage almost as certainly as the sun follows the moon. 

Death 
Here’s my favorite.  I would be out of business if all estate planners followed this advice.  Bottom line, the spendthrift clause (which prevents creditors of the beneficiary from getting the inherited money) is invalid in self-settled trusts in the USA (except in a few domestic Asset Protection is ineffective and unreliable).  The spendthrift clause is normally great protection in a non-self settled trust.  How can you have your cake and eat it too?  SIMPLE:  Structure your estate plan so that when you die the beneficiary getting the stuff becomes the trustee of your estate planning trust which has all the Asset Protection bells and whistles.  If, instead of making an outright gift to the beneficiary, you simply make the beneficiary the trustee of the trust upon your death, he or she is the trustee of a non-self-settled Asset Protection Trust.  Voila.  Perfect protection and, unfortunately, no big fees to Rob.  So, the bottom line to this example is to avoid making outright gifts of anything significant.  Always consider using a trust as the vehicle to make any significant gift.  Note, this same trust can also protect your little baby from his or her future or current spouse. 

Wow, I read this and I sound like a jaded jerk.  I guess that is one of the prices I pay for living in the world of creditor wars. 

Have a healthy and protected week.

Rob Lambert

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