The Monthly Tax and Asset Protection
Newsletter of Klueger & Stein, LLP

March 2009

In the Deep Well of Asset Protection…

We spend so much time dealing with the technicalities and the nitty-gritty of Asset Protection that sometimes we lose sight of the forest for the trees. Every now and then it helps to step back and review some basic principles. Here goes:

1. Asset Protection is Contextual. In other words, an asset protection plan that works for one person may not work as well for another. There are numerous variables at play that will determine what Asset Protection strategy to employ. For example, if Mr. White has $5 million in cash, and Mr. Black owns $5 million is commercial real estate, the strategies that will work for Mr. White might not work for Mr. Black, even if they are otherwise similarly situated. Similarly, if both Mr. White and Mr. Black each has $5 million in cash, but one is been pursued by a lender and another by a tort claimant, the strategies may well be different. Other variables, such as the state in which they reside or whether they are single or married, will dictate different Asset Protection planning. In the world of Asset Protection "one size does NOT fit all." There is, however, one "variable" that is really a constant:
   
   
2. The "Earlier" We Plan, the Better. We have lost count how many times we have had to tell potential clients that we could have helped them had they visited us earlier. A transfer of assets that occurs after a lawsuit if threatened or filed cuts down the options available, because the transfer is likely to be deemed a "fraudulent conveyance." Done early enough, the chances of success increase dramatically.
   
   
3. There are No Magic Bullets. Our clients often want to know if the Asset Protection strategy we intend to employ will "work." If someone owes $1 million, and as a result of an Asset Protection plan that we put into place early enough the creditor is forced to settle for $100,000, did the plan "work"? To the extent of the $900,000 the creditor may have otherwise seized, the plan "worked." Generally, Asset Protection is rarely about building a lead shield that cannot be penetrated under any circumstances. It's more about building a fortress so high and a moat so wide that the creditor is dissuaded from instituting the fight or gives up and settles cheap when the creditor realizes how costly and lengthy the fight will be.
   
   
4. Asset Protection is Not About Hiding Assets. We are often asked how a creditor will "discover" our clients' assets. It's the wrong question. We don't "hide" assets for the simple reason that hiding assets won't work in the face of aggressive and intelligent creditors. Instead, Asset Protection is about structuring your assets so that even if a creditor knows where your assets are, he can't get at them. That works a lot better.

Those are the basics. We need to remind ourselves of them every now and again.