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What Is Asset Protection? We use the term asset protection to encompass a complete analysis of client’s
assets, potential exposure to claims of creditors and the critical study of each asset and how it fits into an
overall plan. For purposes of this discussion and common parlance, we are not talking about reducing death
taxes, income tax reduction or exposure to nursing home expense.
Our typical client concerned about Asset Protection is a person in mid-career who has started accumulating
wealth, but at the same time is exposed to potential liability, usually arising from alleged negligent acts.
Commonly, these individuals are physicians or other health care professionals, architects, engineers,
contractors, individuals handling hazardous materials, and owners of rental property. Normally, we are
dealing with civil liability rather than criminal liability for fines, penalties or forfeitures.
Debts Versus Lawsuits. There is a distinction, for planning purposes, between debts incurred in the normal
course of business, such as bank loans, and liabilities potentially incurred as a result of alleged negligent
actions. That is, the identity of a creditor such as bank lender is known and ascertained, as is the obligation.
Typically, the liability creditor is not known, either as to identify or potential amounts.
The exposure to debt creditors is known in advance and is often a matter of negotiation with the lender. Is a
spouse obligated on the loan? Is there is a personal Guarantee? What assets are pledged as security for the
loan? Planning to change these details after a debt has been incurred is considerably more difficult and
carries more risks than would be the case in planning an asset strategy as to unknown potential creditor.
Some of the factors to be analyzed in asset protection counseling:
Division of Assets. As to either debt creditors or liability creditors, an initial determination of how assets are
owned is important. Michigan offers excellent creditor protection to property owned jointly by a husband and
wife, against the creditor of only one spouse. This would not necessarily be effective if the obligation is joint.
Again, many sophisticated clients look at dividing assets among their children, especially at the beginning of
a business venture.
Title to Assets. Title to assets is definitely related to asset division, but encompasses such things as utilizing
corporations or LLC’s to limit liability. Sometimes clients decide that the administrative costs outweigh
exposure, especially where there is adequate insurance in relation to the potential risk.
Transfer of Assets. Transfers of assets, without consideration to spouses, children or trusts, may pose risks,
depending upon a particular set of circumstances. Of utmost importance is a determination whether the
transfer is a fraud on creditors. There is statutory and case law defining when a transfer of assets is a fraud
on creditors that would permit access to the assets in the hands of a recipient, individually or as trustee. This
is a fact-specific determination. The existence of insurance and the amount of assets retained are important
factors to consider. Assets retained should be reasonable in relation to the transferor’s lifestyle.
In analyzing the fraud on creditors, obviously it makes a difference whether a particular creditor is identified or
unidentified at the time of the transfer. Avoiding a bank creditor is certainly much more difficult and much more
likely to be exposed to claim of fraud than a creditor who arises after the transfer and was not identified at the
time (such as a disgruntled patient).
Asset Protection Trusts. There has recently been a spate of articles and other publications in the legal
community concerning Domestic Asset Protection Trusts (DAPTs) established under the laws of 7 or 8 states
who have recently enacted special legislation, both to protect their own citizens and to attract trust business
from residents of other states. Alaska and Delaware are in the vanguard of these states, and Oklahoma in
2004 adopted a radical new statute protecting Oklahoma Trusts even if they are revocable. A common
element in these statutes is protection of the trust, even though the transferor is a trust beneficiary. These
laws are too recent to have spawned test court cases to determine whether a Judgment from Michigan, for
example, can or would be enforced against the Delaware Trustee of a DAPT. The jurisdiction of federal courts
in bankruptcy cases, similarly has not yet been tested, and a summary of the bankruptcy law changes will be
the subject of a next month’s newsletter.
State of Domicile. The domicile of a debtor has always had a impact on the assets that could be protected.
The law of the state of domicile has long been given recognition by the federal bankruptcy laws. Instead of
looking only at the income or estate tax laws in a state, when contemplating a move, our clients may begin to
analyze the provisions of the new federal bankruptcy law in this respect. In our mobile society where clients
have two or three residences, selection of the state of domicile for legal as well as other tax purposes, can be
an important decision.
Foreign Asset Protection Trusts. There has been publicity in recent years about Foreign Asset Protection
Trusts in jurisdictions such as the Bahamas, Cook Islands, or some of the semi-independent islands near
Great Britain. Typically, the cases which come to public attention are those involving extreme facts and
criminal activity. Many times the transferor of the assets have been convicted of federal criminal offenses such
as securities or mail fraud. When the defrauded plaintiffs or the federal government seeks to recover these
funds, it is not surprising that the foreign trusts prove vulnerable or the defendant decides to repatriate the
money rather than spend an unlimited time in prison for contempt.
Fact Specific. This brief summary should be enough to impress the reader that each case is extremely fact
specific when the matter reaches a court. However, in the overall planning phase, we especially urge
individuals involved in professions or business where there is a large exposure to liability to consider asset
protection as a primary goal in estate planning, rather than simply focusing on the tax aspects
If you have clients who would benefit from asset protection counseling in conjunction with their estate plans,
please do not hesitate to contact Jim Modrall or our new trust and estate planning attorney, David R.
Appleford, JD, LLM (taxation) who joined our firm on April 4, 2005 at 231-941-9660.
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
assets, potential exposure to claims of creditors and the critical study of each asset and how it fits into an
overall plan. For purposes of this discussion and common parlance, we are not talking about reducing death
taxes, income tax reduction or exposure to nursing home expense.
Our typical client concerned about Asset Protection is a person in mid-career who has started accumulating
wealth, but at the same time is exposed to potential liability, usually arising from alleged negligent acts.
Commonly, these individuals are physicians or other health care professionals, architects, engineers,
contractors, individuals handling hazardous materials, and owners of rental property. Normally, we are
dealing with civil liability rather than criminal liability for fines, penalties or forfeitures.
Debts Versus Lawsuits. There is a distinction, for planning purposes, between debts incurred in the normal
course of business, such as bank loans, and liabilities potentially incurred as a result of alleged negligent
actions. That is, the identity of a creditor such as bank lender is known and ascertained, as is the obligation.
Typically, the liability creditor is not known, either as to identify or potential amounts.
The exposure to debt creditors is known in advance and is often a matter of negotiation with the lender. Is a
spouse obligated on the loan? Is there is a personal Guarantee? What assets are pledged as security for the
loan? Planning to change these details after a debt has been incurred is considerably more difficult and
carries more risks than would be the case in planning an asset strategy as to unknown potential creditor.
Some of the factors to be analyzed in asset protection counseling:
Division of Assets. As to either debt creditors or liability creditors, an initial determination of how assets are
owned is important. Michigan offers excellent creditor protection to property owned jointly by a husband and
wife, against the creditor of only one spouse. This would not necessarily be effective if the obligation is joint.
Again, many sophisticated clients look at dividing assets among their children, especially at the beginning of
a business venture.
Title to Assets. Title to assets is definitely related to asset division, but encompasses such things as utilizing
corporations or LLC’s to limit liability. Sometimes clients decide that the administrative costs outweigh
exposure, especially where there is adequate insurance in relation to the potential risk.
Transfer of Assets. Transfers of assets, without consideration to spouses, children or trusts, may pose risks,
depending upon a particular set of circumstances. Of utmost importance is a determination whether the
transfer is a fraud on creditors. There is statutory and case law defining when a transfer of assets is a fraud
on creditors that would permit access to the assets in the hands of a recipient, individually or as trustee. This
is a fact-specific determination. The existence of insurance and the amount of assets retained are important
factors to consider. Assets retained should be reasonable in relation to the transferor’s lifestyle.
In analyzing the fraud on creditors, obviously it makes a difference whether a particular creditor is identified or
unidentified at the time of the transfer. Avoiding a bank creditor is certainly much more difficult and much more
likely to be exposed to claim of fraud than a creditor who arises after the transfer and was not identified at the
time (such as a disgruntled patient).
Asset Protection Trusts. There has recently been a spate of articles and other publications in the legal
community concerning Domestic Asset Protection Trusts (DAPTs) established under the laws of 7 or 8 states
who have recently enacted special legislation, both to protect their own citizens and to attract trust business
from residents of other states. Alaska and Delaware are in the vanguard of these states, and Oklahoma in
2004 adopted a radical new statute protecting Oklahoma Trusts even if they are revocable. A common
element in these statutes is protection of the trust, even though the transferor is a trust beneficiary. These
laws are too recent to have spawned test court cases to determine whether a Judgment from Michigan, for
example, can or would be enforced against the Delaware Trustee of a DAPT. The jurisdiction of federal courts
in bankruptcy cases, similarly has not yet been tested, and a summary of the bankruptcy law changes will be
the subject of a next month’s newsletter.
State of Domicile. The domicile of a debtor has always had a impact on the assets that could be protected.
The law of the state of domicile has long been given recognition by the federal bankruptcy laws. Instead of
looking only at the income or estate tax laws in a state, when contemplating a move, our clients may begin to
analyze the provisions of the new federal bankruptcy law in this respect. In our mobile society where clients
have two or three residences, selection of the state of domicile for legal as well as other tax purposes, can be
an important decision.
Foreign Asset Protection Trusts. There has been publicity in recent years about Foreign Asset Protection
Trusts in jurisdictions such as the Bahamas, Cook Islands, or some of the semi-independent islands near
Great Britain. Typically, the cases which come to public attention are those involving extreme facts and
criminal activity. Many times the transferor of the assets have been convicted of federal criminal offenses such
as securities or mail fraud. When the defrauded plaintiffs or the federal government seeks to recover these
funds, it is not surprising that the foreign trusts prove vulnerable or the defendant decides to repatriate the
money rather than spend an unlimited time in prison for contempt.
Fact Specific. This brief summary should be enough to impress the reader that each case is extremely fact
specific when the matter reaches a court. However, in the overall planning phase, we especially urge
individuals involved in professions or business where there is a large exposure to liability to consider asset
protection as a primary goal in estate planning, rather than simply focusing on the tax aspects
If you have clients who would benefit from asset protection counseling in conjunction with their estate plans,
please do not hesitate to contact Jim Modrall or our new trust and estate planning attorney, David R.
Appleford, JD, LLM (taxation) who joined our firm on April 4, 2005 at 231-941-9660.
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
| WEALTH CONSERVATION: PROFESSIONAL ALERT Brandt, Fisher, Alward & Roy, P.C. |
| If you would like to receive future editions of the monthly Wealth Conservation Newsletter directly to your e-mail account, please e-mail our office using the following link: Estate Planning Newsletter |
| Brandt, Fisher, Alward & Roy, P.C. Attorneys at Law |
| May 2005 ASSET PROTECTION - AN ALERT by James R. Modrall III, J.D., C.P.A., David R. Appleford, J.D., L.L.M. (Taxation) |