In our previous post, we began looking at the importance of asset preservation planning, to work in conjunction with estate planning.
Asset preservation focuses of various strategies for asset preservation. The goal is to minimize or eliminate the various types of liability that can deplete your estate. That includes long-term care costs, lawsuits, estate and gift taxes, losses arising from poor investments, or dealing with a spendthrift son or daughter. As we mentioned in our last post, addressing these types of concerns will enable you to pass on your wealth in a more secure manner.
To be effective, asset preservation planning must be proactive and avoid procrastination. Along with avoiding needless stress and headaches, there is also the reality that it is always more difficult to deal with a liabilities once they already exist. Putting asset preservation strategies in place before liabilities arise will greatly minimize their impact. One important consideration in this area is fraudulent transfer actions.
Fraudulent transfer actions are civil claims brought by creditors or bankruptcy trustees, if a bankruptcy is involved, in which the debtor is accused of donating assets to an asset preservation scheme in order to avoid paying off creditors. Transfers of property to asset preservation schemes are considered fraudulent if they fall within the time frame established by the relevant statutes. Most states have adopted the Uniform Fraudulent Transfer Act, and if bankruptcy is involved, the federal Bankruptcy Code will be relevant. The important thing to understand is that transfers that take place before the liabilities arise can be counted as fraudulent and set aside.
For that reason, it is better to do your planning before such liabilities arise, and to do so as soon as possible. Trying to engage in asset preservation planning after a claim or liability already exists can lead to additional problems, as the debtors and those who helped them set up the asset preservation scheme could end up paying the creditor's attorney fees. If the claim arises in connection with a bankruptcy, the debtor very well may lost the ability to discharge debt. In short, do asset preservation planning early so as to avoid problems later on.
In our next post, we'll keep looking at asset preservation planning.
Source: Forbes, "Ten Rules For Asset Protection Planning," Jay Adkinsson, 13 July 2011.