Ferris & Britton


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Protecting Your Assets From Plaintiffs and Creditors
By Gary T. Moyer

Do you believe that the law protects and favors plaintiffs, especially against business owners and property owners?

Do you believe that the wealth you have already worked so hard to accumulate, or the wealth you are currently working hard to accumulate, is at risk by the simple event of a neurosurgeon slipping and falling outside your home/business/rental property during the next light rain or the discovery that your new rental property formerly was a gas station and still has gasoline holding tanks buried on it?

The answer is that businesses, their owners, and other persons who have accumulated wealth have numerous legal, ethical and cost-effective asset protection avenues available to them that too often are ignored. The American legal system is a beautiful system that, despite the current image many have of it, is based on the fair and just treatment of each individual. Plaintiff's do not have more rights than you do!!

Plaintiff's and their lawyers have simply been more aggressive in taking advantage of the opportunities the legal system provides them. Asset protection planning is a phrase that is in vogue lately, especially in these recessionary times. But what is asset protection planning? It is the structuring of one's assets and affairs in advance so that they are insulated from loss by reason of a future financial calamity.

Why can't you simply give all your assets to your spouse or your children? The short answer involves gift tax laws (which are separate and distinct from income tax laws) and fraudulent conveyance laws. The former would result in adverse transfer tax consequences if the assets were transferred to your children, and the latter would be ineffective if it left you insolvent after the transfer or the transfer was made in the face of a large pending liability. Moreover, a transfer to your spouse in a community property state may not give you complete protection from creditors.

The number one thing we stress to our clients is the "planning" component of asset protection planning. A client severely limits his or her options if they wait until the judgment or economic disaster is upon them before they initiate their asset protection "plan."

The asset protection plans available vary from simple to complex. On the relatively simple side of the scale, techniques available include outright gifts (as discussed above), incorporation, limited liability companies and ERISA-qualified retirement plans. More sophisticated, but nonetheless common and cost-effective, asset protection plans include family limited partnerships and irrevocable trusts. Finally, the most sophisticated, and, frankly, the most expensive, asset protection technique is a trust whose "situs" is a debtor-friendly haven such as the Cayman Islands or the Bahamas.

The classic family limited partnership goal is for mom and dad to own 1% of the FLP, as general partners, with the children and/or grandchildren owning the remaining 99%, as limited partners. As general partners mom and dad control the partnership and thus its assets.

Business owners and persons of wealth do have rights vis a vis plaintiff's and creditors, and Ferris & Britton helps their clients avail themselves of such rights!