Asset Protection
Asset protection refers to a set of legal techniques for protecting one’s assets against lawsuits and judgments. Asset protection planning is the use of advance planning techniques to place your assets beyond the reach of future potential creditor.
However, because of the Fraudulent Conveyance laws, it is difficult to place your assets beyond the reach of existing creditors. Thus, an appropriate asset protection plan does not involve hiding or concealing assets or otherwise attempting to defraud creditors. A properly constructed asset protection plan allows a client to achieve his objectives while fully and truthfully disclosing all of his financial circumstances. Individuals with perceived deep pockets, such as business owners, athletes, entertainers, doctors, lawyers, and other high net worth professionals are in need of asset protection planning. Many people hold off on asset protection until there is a direct threat of litigation. You cannot afford to wait until you’ve been sued to plan! An asset protection plan is designed to discourage a potential lawsuit before it begins.
A properly designed asset protection plan can accomplish many of our client’s most important objectives:
- Protection of family savings and investment from lawsuits and claims.
- Insulation of rental properties: to reduce your exposure to potential lawsuits.
- Protection of business holding for potential claims.
- Deter lawsuits
- Provide incentive for early and cheap resolution of lawsuits
While trust are often used for tax planning reason, they are also vehicles with asset protection capabilities. Trusts are the cornerstone of planning to protect assets. Therefore, assets owned by a properly established trust can be safeguarded from creditors claims. We explain to clients the important asset protection vehicles which can be used individually or in combination based upon your particular circumstances which include:
1. Qualified Personal Residence Trust
2. Asset Protection Trust
3. Irrevocable trusts
4. Insurance trusts
5. Family transfers
6. Family Limited Partnership
7. Limited Liability Company
We also explain to clients how assets transferred to a family limited partnership, a family limited liability company or other entities can insulate property and help protect assets, investments, and business interests from claimants and creditors. A creditor who receives a judgment and seizes a membership interest in an FLP or LLC has no control over management or distributions and merely becomes an assignee. This entitles the creditor only to whatever distributions, that are made to the member.
However, Ohio Revise Code Section 1705.19 amendments that became effective on May 4, 2012, have brought about significant changes. Ohio‘s law now specially provides that a charging order is the sole and exclusive remedy that a judgment creditor may seek to satisfy a judgment against the membership interest of a member or member’s assignee.
The amended statute further states that no creditor of a member of an LLC or a member’s assignee shall have any rights to the property of the LLC. The charging order will entitle the creditor to the LLC distributions, if and when made, but the creditor will not be permitted to: (1) seek to take possession of the member’s membership interest in the LLC; (2) seek to take possession of any assets held by the LLC; or (3) exercise any management rights enjoyed by the member; and as long as the LLC follows its governance formalities, the LLC’s assets should remain entirely out of the reach of a member’s creditors.
