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Asset Protection Is About Living

By John Dietz - Email Editor

May 2010

Dear Valued Reader,

Being on the front lines of asset protection planning for many moons now, I've had a box seat to the good, bad and the ugly. Reviewing plans from highly respected law firms and corporate service providers can be challenging.

Thoughtful planning takes time and experience. It requires a careful initial review of a client’s situation and mandatory periodic updating to conform to the client’s evolving social, economic and financial needs. The plan should be easy to follow from implementation to follow through, have economic substance, pass to heirs effortlessly and provide maximum protection while maintaining flexibility. Most importantly it should be realistic and functional.

Too often I see asset protection and business contingency structures that can charitably be described as needlessly complicated. In many cases client circumstances lent themselves to simple, straight-forward asset planning only to end up with an excessive labyrinth of shell corps and offshore trusts that yielded onerous tax reporting requirements, thus endangering the very purpose of the plan. In such cases it's likely the planners didn’t make an accurate initial assessment of needs, and overwhelmed clients were hesitant to question the viability of such an intimidating matrix.

In one particular case when planners had finished with the client (and the client checkbook) the client ended up with 16 companies of various sorts, onshore and offshore, all piled on top of one another layer upon layer. My reaction: The IRS gets notoriously excited about unreported offshore structures. What are they going to make all of this? Who is keeping all of these companies and trusts in check?

This expert advisor’s initial client plan was neither simple nor elegant. Tax filings and compliance were a nightmare out of the gate. Client’s counsel had built an overly complex plan the client was unable to maintain and extremely vulnerable to paying dearly for even the smallest mistake.

When planning and building an asset protection structure, a healthy dose of reality regarding the client’s capacity to understand and manage it must be considered. It needs to be robust but should bear a simple elegance and fit within the client’s skill set and lifestyle.

Core concepts to consider:

What is the value of your assets? An honest assessment is key. If real estate, how much equity do you have? How much cash and cash equivalents do you have? What is the value of your business interests? Do you have precious metals or artwork?

Can your business assets be protected? And if your company is sued, can you personally be sued? While we can debate the specific types and scope of structuring is necessary, we know in most instances the liability always reverts back to the humans behind it all.

Is your net worth sufficiently protected allowing it to be passed to the next generation? And if so, to whom specifically? It's been said that asset protection is the “living” side of estate planning. Asset protection is the defense and preservation of assets during life, estate planning provides for the orderly disposition of assets upon one’s Great Reward. So it only follows that if your assets are unprotected in life ...

If you’d like to ensure your estate planning is properly coordinated with protection of your current assets, or if you’d like to know more about asset protection, we’d be more than happy to offer you a free consultation.