Michigan Asset Protection Lawyer Blog

For a decade and a half there were no court opinions upholding challenges to domestic asset protection trusts (“DAPT’s”). Indeed, there were no decisions at all. This lack of jurisprudence gave asset protection planners renewed confidence to consider using DAPT’s when clients sought protection against future creditor claims.
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Asset protection planners invariably deal with insurance and discuss its place in the asset protection plan. No legitimate asset protection planner, irrespective of the elegance of the plan he or she may have conceived, will advise a client to forego obtaining and maintaining auto insurance, home insurance or malpractice insurance coverage. There is no such thing as establishing a structure that is one hundred percent invulnerable to creditor claims; therefore, having liability insurance as the first level of defense just makes good sense. It is in this context that I am going to discuss whether consumers are adequately represented by their insurance agents. And why it is so important for consumers to thoroughly investigate their insurance needs and the products offered to satisfy those needs.
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Asset protection planning attorneys need to be vigilant that strategies they are recommending do not violate the Michigan Fraudulent Transfer Act (“Act”). In Bentley Terrace Dillard Family Trust v. Schlussel, the Michigan Court of Appeals provided and detailed and well-reasoned opinion and concluded that a debtor lawyer’s transfer of assets to his wife for the ostensible purpose of paying ordinary household expenses was a fraudulent transfer.
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As an asset protection planning attorney, it is interesting how often other attorneys ask me about the exposure of their clients’ social security and pension monies to creditors’ claims. The frequency is probably directly correlated to the fact that social security benefits and pension benefits are ubiquitous and so the question comes up all the time. While the law is clear on the debtors’ and creditors’ rights in these situations, unless the attorney practices in the asset protection planning arena, he or she may not be aware of the specific rules. Therefore, a brief summary may be helpful to the readers of my blog.
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The bankruptcy case of Running v. Miller (In re Miller) is one of those cases where the Trustee in bankruptcy, in a zealous effort to grab the debtor’s assets, ignores the Internal Revenue Code (“Tax Code”), common practice and common sense. Here, the debtor filed a Chapter 7 bankruptcy case and scheduled an individual retirement annuity as exempt under 522(b)(3)(C) of the Bankruptcy Code. If an individual retirement annuity meets the Tax Code 408(b) definition, the annuity is not part of the bankruptcy estate and is exempt from creditor claims.
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Asset protection planning attorneys are often asked about protections that are available for qualified retirement plans and whether retirement plan assets are subject to claims of creditors. As a general rule the account of a participant in a qualified retirement plan, such as a profit sharing plan or 401(k) plan, is exempt from creditor claims with limited exceptions. For example, a spouse in a divorce can seek a qualified domestic relations order to reach the participant spouse’s interest in the account and the IRS can access the account for unpaid taxes. But typically banks and judgment creditors cannot reach the debtor’s interest in a qualified plan.

A 2013 Bankruptcy Case has now identified a set of circumstances where the general rule is not applicable and where the debtor’s interest in the plan is fully accessible by his general creditors (Daniels v. Agin, 736 F.3d 70 (2013)).
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In the world of commercial finance, it is not unusual to encounter a lender who automatically seeks the guaranty of the applicant’s spouse. If a default subsequently ensues, the lender will pursue the guarantor spouse for payment of the principal obligor’s debt. Typically the paperwork is in order and the lender’s form of guaranty is quite thorough. What possible defense can be raised by the guarantor spouse to avoid liability?
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In the world of asset protection planning there are times when it is advantageous to hold a personal residence in a limited liability company. Generally, such a situation would be applicable where there is a client who wishes to protect a valuable asset from future unknown creditors, the conveyance to the LLC is not a fraudulent transfer, the desire to obtain creditor protection trumps the loss of any property tax benefit otherwise available to a principal residence, and the client accepts certain complexities that go along with the transaction. For example, the client will need to enter into a lease with the LLC upon arms length terms in order to avoid the LLC being deemed the alter ego of the client which would likely nullify any creditor protection benefits.
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As an asset protection planning attorney with many years of experience, I am frequently asked to speak at seminars on the topic. In these lectures, I spend a fair amount of time discussing ethical issues and the risks to the lawyer of representing debtors desperate to protect assets from their creditors’ claims. In my experience, many of these clients arrive at a first meeting with very strong ideas of what they would want to do ….. occasionally this involves either making fraudulent transfers or hiding assets. In those instances where the client’s initial intent is to violate the Fraudulent Transfer Act or engage in other fraudulent or illegal activity, the lawyer is correct to be concerned that he or she will somehow run afoul of ethical or legal boundaries. As a result, a number of lawyers who claim to be asset protection lawyers flatly refuse to accept such engagements. I believe this is a poor decision for at least two reasons; namely, it deprives the potential client of much needed representation at a very vulnerable time and it is completely unnecessary because a well-schooled asset protection lawyer should know the boundaries and be comfortable as to what can and cannot be done.
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