ESTATE AND ASSET PROTECTION PLANNING

Attorneys, CPAs and estate planners may have a duty to counsel clients on asset-protection, even if asset-protection is beyond the scope of their client engagement.  Whether or not you have a duty to advise depends upon the “custom in the area where you practice”.  A professional is required to have the skill, prudence, and diligence as other members of the profession commonly possess and exercise.  The widespread discussion of asset-protection issues and the increasing numbers of seminars, articles and books on the subject, may indicate that we need to either fully advise our clients or expressly disclaim giving asset protection advice, thus giving the client notice she may need additional representation.  Even casual advice could expose a professional to liability.

Asset protection plans can be combined with traditional estate planning devices.  Unfortunately, California Law is not asset protection friendly.  The use of out of state or international trusts is possible solution, but only after very thorough analysis and planning.  Self-settled trusts are very problematic and offer little if any asset protection.

There are many types of estate planning trusts that have some asset protection attributes. A spendthrift trusts for beneficiaries protect the income and principal of the trust from most creditors. Other trusts that serve in one way or another to shield assets from creditors include discretionary trusts, support trusts, and personal trusts.  A discretionary trust is the most powerful asset-protection trust available; however, it weakens the rights of the beneficiaries and strengthens the powers of the trustee.  A support trust instructs the trustee to apply as much of the income and principal as is necessary for the education and support of the beneficiary. A beneficiary's interest in a support trust is not subject to the claims of his or her creditors, at least until payments are actually distributed. 

Partnerships and LLC’s can be very powerful estate planning tools that have several tax and asset-protection issues. These devices are especially effective in the generation transfer of family business interests.

CAUTION, there are many downsides to aggressive estate tax planning, A tax advantage on one hand can be a significant detriment on the other.  All aspects of estate tax planning must be integrated into the whole plan.  For example, transfer of property made with actual intent to hinder, delay, or defraud a creditor is a fraudulent transfer.  (CC §3439.04(a)(1))   It is important to note that constructive fraud does not require fraudulent intent.  Timing is extremely important.  Transfers made on the eve of financial catastrophe are problematic.  Clearly, careful situational analysis by a team of the individual’s financial advisors, tax accountant and estate planning attorney is the mandatory prerequisite to aggressive estate planning.  The cost of Estate and Asset Planning analysis is not insignificant; however, the potential estate tax savings can be substantial.