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Asset Protection Times

By Rob Lambert - Email Editor

Date : January 22, 2009

Dear Valued Reader,

Asset Protection Planning is good for everybody, big or small. Why, because we all have predators.

The planning can take many forms and occur at many times. In the future I will be doing a newsletter on the key indicators of when Asset Protection is NOT appropriate. The bottom line is that it is almost always possible to implement some significant degree of protection, even if the war clouds are billowing around.

In this newsletter I thought I would identify several life events that just scream out that it is appropriate and time to protect yourself. Here are some key life events which should trigger the “Asset Protection urge” which we all feel at one time or another. (The more the better in my mind!).

Bankruptcy

One of the best 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 to and promised to share and meld your lives into some magical cosmic furball, 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.

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. 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. 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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