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Asset protection planning literature and seminars deal overwhelmingly with discussions about fraudulent transfers, offshore trusts, charging orders and the like but fail to identify some of the easiest but most effective tools within the asset protection planner’s workshop. I am always amazed how the most simple, obvious and effective approaches are ignored. For instance, if we have a debtor client who is hopelessly in debt but for which bankruptcy, for one reason or another, is not a solution, we know there will be judgments outstanding for many years. So what should we be telling our clients? How about having wealthy parents change their estate plans so that upon their death, assets don’t go to debtor child but instead are held in a discretionary spendthrift trust for debtor child. How about making sure the beneficiary of the life insurance policy on life of debtor’s wife is changed from husband to her trust which has discretionary spendthrift language for husband. How about making sure that the buy sell life insurance policies on the lives of debtor and his partner are reviewed to insure that the amount of death benefit currently provided for still makes sense given the general demise of the business. More importantly, since we don’t want unexpected death of partner to result in debtor partner receiving insurance proceeds which will be grabbed by creditors, why not have just a portion of the proceeds used to buy out decedent’s interest and balance paid to an irrevocable trust with debtor partner as discretionary beneficiary. I often discuss these ideas with colleague Gary Nitzken, a highly esteemed Michigan collection attorney – www.michigancollectionlawblog.com – and he just wishes I would go away. He points out to me that in addition to aggressively pursuing all opportunities to collect, he also knows how to wait in the wings until an event such as a death results in assets coming into the hands of debtors. My strategies simply undercut his opportunities.

Most of my asset protection planning clients are not criminals…but some are. They have been convicted of health care fraud, tax evasion, Builder’s Trust Fund Act violations, insurance fraud and so forth…and, interestingly, we can usually help these people. But what is the impact when someone pleads guilty to a criminal act in order to achieve a quick and acceptable settlement but the act was actually an accident and unintentional. According to Jason Byrne in his article in the December 2007 Michigan Bar Journal, “How a Criminal Plea Can Result in the Loss of Insurance Coverage” be very careful or you can lose your insurance coverage. Jason points out how in several cases where the defendant claimed the act was an accident the prosecutor claimed it was intentional and to settle the case the defendant pled to a minor crime avoiding incarceration. However, when the victim later sues civilly to recover damages and the “criminal” looks to his insurance carrier for defense and coverage, the insurer denies coverage on the basis that it will not pay for any loss “arising out of a criminal act or omission.” There are different types of exclusions that insurers use, as pointed out in the article, but one thing is clear, the criminal lawyer looking for a “best deal” may be far better off having the client enter a plea of nolo contendere rather than an affirmative plea of guilty.

Thanks to Professor Adam J. Hirsch’s article entitled “The Uniform Acts’ Loophole in Fraudulent Conveyance Law in the December 2007 edition of Estate Planning Journal, we in the asset protection community now have a new strategy that can be invoked. It’s weird and maudlin but could work under some circumstances…particularly when we are faced with overwhelming claims and the UFTA is blocking us every place we turn. Here’s the Cliff Notes rendition. The law is split on whether disclaimers are transfers and therefore subject to fraudulent transfer law. However, Professor Hirsch claims a disclaimer is not a transfer, a key prerequisite for UFTA coverage. This leaves open the following planning scenario: Debtor establishes a joint account with terminally ill accomplice (doesn’t sound good but that’s what he is) who lives in a state that has adopted the Uniform Disclaimer of Property Interests Act (UDPIA). Debtor puts in all the assets. Accomplice dies and under the UDPIA Debtor can disclaim up to 50% of the account. Accomplice’s will provides for the property in the joint account to pass to Debtor’s suggested heirs. Result: 50% of assets deposited into the joint account avoid being reached by Debtor’s creditors. While there are only 14 jurisdictions that have adopted UDPIA, Michigan not being one of them, if you find a willing partner in one of the available jurisdictions the scheme may work.

I just completed setting up a couple of domestic asset protection trusts with Wilmington Bank as Trustee. Until now I had been using offshore jurisdictions. One useful and interesting observation: by establishing single member Michigan LLC’s which are owned by the Delaware Trustee, my client maintains control over the assets without any creditor exposure. How? Because my client is the non-member manager of the LLC’s…he can buy, sell and trade assets. However, any distributions from the LLC can only go to the trustee-not to my client. This is the case where you can have your cake and eat it too.

Have you just been sued or are about to be? Have you accumulated substantial wealth and are concerned about losing it? Have you been told by your professional advisors that it is too late to do anything about it because of something called the Fraudulent Transfer rules? Let me tell you, there are always some things that can be done to help your position…but go see an expert. Let me give you an example. If you are the beneficiary of your spouse’s life insurance policy or IRA, get the beneficiary designation changed. This is not a fraudulent transfer. Why do this? Because if you get a judgment against you and the beneficiary designation is not changed guess what…upon your spouse’s death the money goes right from her to you to your creditors. You would feel pretty stupid if that happened. So, there are many things that can be done. In any event, don’t you want an expert’s professional advice on what assets are subject to being grabbed by your creditors and what assets are already protected.