In our last two posts, we have been looking at the importance of asset preservation planning. As we have tried to stress, asset preservation planning is an important element in coming up with a solid estate plan, as it ensures that the wealth you pass on has minimal exposure to creditor's claims.
In this final post, we'd like to offer a few practical pieces of advices concerning asset preservation planning. Firstly, it is important that any asset preservation plan you set up is relatively uncomplicated, and can be explained to a court without too much difficulty. If a asset preservation plan is so complicated that it becomes difficult to articulate exactly how it works, you may run into problems later on if you are asked to give an account of the plan.
On a related note, when you are setting up your asset preservation plan, you should assume that the plan's entire structure and operation will eventually become known to various persons other than you and your planner. Assuming that you will be able to keep your plan a secret can cause problems in various ways. And, in any case, if you go into bankruptcy you will not be able to go forward with the process unless you reveal the nature of the asset preservation scheme.
Some individuals assume that their overseas assets will be safe from creditors claims, but that would not be a correct assumption. Courts have the power to order "repatriation" of overseas assets, so an asset preservation plan should not count on keeping assets safe by investing them overseas.
Similarly, you should not assume that your assets will be safe if you pour them into a business entity. Creditors are usually able to pierce corporate entities to access personal assets. On the other hand, trusts which are drafted correctly and properly funded are an excellent way to protect your personal assets.
As a final piece of advice, it is worth mentioning that bankruptcy should not be seen as a viable alternative to asset preservation planning. Regardless of how well the bankruptcy proceeds, it will be a wearisome process, and will involve hard work recovering. It is preferable to set up a workable asset preservation plan early on to avoid any problems.
Source: Forbes, "Ten Rules For Asset Protection Planning," Jay Adkinsson, 13 July 2011.