Asset Protection Planners Miss the Boat

Asset protection planning literature and seminars deal overwhelmingly with discussions about fraudulent transfers, offshore trusts, charging orders and the like but fail to identify some of the easiest but most effective tools within the asset protection planner’s workshop. I am always amazed how the most simple, obvious and effective approaches are ignored. For instance, if we have a debtor client who is hopelessly in debt but for which bankruptcy, for one reason or another, is not a solution, we know there will be judgments outstanding for many years. So what should we be telling our clients? How about having wealthy parents change their estate plans so that upon their death, assets don’t go to debtor child but instead are held in a discretionary spendthrift trust for debtor child. How about making sure the beneficiary of the life insurance policy on life of debtor’s wife is changed from husband to her trust which has discretionary spendthrift language for husband. How about making sure that the buy sell life insurance policies on the lives of debtor and his partner are reviewed to insure that the amount of death benefit currently provided for still makes sense given the general demise of the business. More importantly, since we don’t want unexpected death of partner to result in debtor partner receiving insurance proceeds which will be grabbed by creditors, why not have just a portion of the proceeds used to buy out decedent’s interest and balance paid to an irrevocable trust with debtor partner as discretionary beneficiary. I often discuss these ideas with colleague Gary Nitzken, a highly esteemed Michigan collection attorney – – and he just wishes I would go away. He points out to me that in addition to aggressively pursuing all opportunities to collect, he also knows how to wait in the wings until an event such as a death results in assets coming into the hands of debtors. My strategies simply undercut his opportunities.

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