Asset Protection Planning- "Keep it Secret; Keep it Safe."

A stark warning to those engaged in asset protection planning comes from Jay Adkisson,  a Partner in the Newport Beach, California, law firm of Riser Adkisson LLP, who practices in the areas of creditor-debtor law, in an excellent article for Forbes Magazine, entitled, "Kilker - Asset Protection Intent In Making Transfers To Protect Against Future Creditors Means Disaster When Creditor Appears." Simply, as the wizard Gandalf instructed the Hobbit Frodo, in Lord of the Rings: "Keep it secret; keep it safe."  Identifying asset protection planning as a purpose of your estate plan is, perhaps, the first step to losing the protection.  

Attorney Adkisson writes:  

"Taking this opinion at face value, the lesson here is simple and commonsensical but is one that is often ignored by planners: Asset protection planning should rarely be undertaken in its own name or for that stated purpose.

If the Engineer here had not admitted that he put this structure in place for asset protection purposes, and to defeat the rights of future claimants who might sue him over soil studies gone bad, then the result might have been very different on this point.

There is rarely a need to announce to the world that something was done for asset protection purposes, to call something an “asset protection trust”, to send an “asset protection” engagement letter, or any of the like. Yet, bad planners and do-it-yourselfers do it every day.

To the contrary, asset protection planning should almost exclusively be undertaken for some other purpose than creditor planning.  Do it for estate or succession planning reasons, do it for general business or financial planning reasons, do it for health reasons, do it because you’re trying to look out for an heir, but don’t state that you’re doing it for creditor reasons. (emphasis added).

There is great risk in boldly and publicly identifying an estate, business or financial plan as an asset protection plan.  Yet the market is replete with estate plans employing documents entitled "Asset Protection Trusts," or which have other, often imposing, titles such as fortress Trusts," or "The Castle Plan."  Perhaps my personal favorite is the "Complete Asset Protection Plan," which I reviewed for a client that had transferred only the personal home and a single bank account to the dubious plan, thereby rendering the supposed benefits of the plan far less than "complete." 

Proper asset protection is not easily accomplished, and it is easily lost.  If you want to incorporate asset protection planning in your estate, business, or financial plan, you are best advised to seek, and maintain a relationship with an attorney.  From conception to development, and through implementation of the plan, care must taken to ensure that the plan is as carefully protected as are the assets.  Finally, proper use of the plan as a shield requires counsel regarding presentation of the plan.

"Keep it secret; keep it safe."  It sounds simple, but it isn't.  If your assets are important enough for you to want a plan to protect them from risk of loss, they are important enough to ensure that the plan is properly drafted and implemented.