I saw attorney Jay Adkisson speak at an attorney conference today. He’s been an asset protection attorney for decades. Now he spends most of his time helping creditors collect on judgments, but also help with asset protection. In other words, he plays on both sides of the street.
Jay said today that 99% of the asset protection plans that he comes across are little more than a placebo. In other words, a good creditor attorney can get to the assets most of the time. Why? Because a good asset protection plan is complex. Most attorneys don’t think about all the details that are needed to properly set them up. Such attorneys don’t have actual experience defending against creditor’s attorneys or dealing with angry judges. They also don’t advise their clients about how to fund and maintain the plan.
Think of a good asset protection plan as being like an Audi A4 (one of the safest vehicles). It’s a precision machine, and it needs things like oil changes, and not taking it off-roading. Similarly, if you’re paying living expenses and your kids’ private school tuition out of your limited partnership, a court will easily find that you’re treating the partnership as your personal asset. The result will be that everything in the partnership (including all the assets you thought were protected) will be available to paying off your debts.
But some people are sold Kia Rios (one of the least safe vehicles) and told they are safe. A simple example is a Domestic Asset Protection Trust that owns your home. This is a trust with a trustee in a state such as Delaware or Nevada with special laws that supposedly protect the trust from your creditors. If you actually live in the state where that trust is located (Delaware or Nevada in our example), you might be protected.
But if you live in Arizona, for example, an Arizona court could simply order that your Arizona house be sold to pay your debts. (There’s a $150,000 homestead exemption in Arizona that I’m not mentioning. But most of our clients have equity that far exceeds $150,000.)
There are really strong ways to protect your assets, and I’ll get into those in later posts. For now, here are a few things to remember:
- If you have a Domestic Asset Protection Trust, I suggest fixing it to be stronger. Recent case law has shown that these are not very protected.
- If you’re thinking of protecting your assets, do it sooner rather than later. Your options are few to none once you get sued.
- If you have an asset protection plan, but haven’t had it reviewed for more than a year, see an attorney. Cars need oil changes. And asset protection plans need regular review and maintenance.