Donald M. Thompson - Wills, Trusts, and Estate Planning


Asset Protection

A variety of steps can be taken to protect assets from creditors. One simple step is to transfer your assets to your spouse. This assumes you have a healthy marriage and that your spouse's creditors are not a problem. It may also interfere with planning to avoid estate taxes. Other devices which are sometimes used are:

Statutory exemptions from enforcement of judgments. By statute a creditor cannot reach certain assets. In most states creditors cannot get your residence if the equity in it is below a certain level. In Illinois this is $7500 for a single person or $15,000 for married persons. In some states the amount of the exemption is unlimited. Under the bankruptcy laws the assets protected by state law are also exempt assets in bankruptcy.

Retirement vehicles. In most states pension, profit sharing and other retirement the entity are at risk, not your other assets outside the entity. This does not work when you do the act creating certain liabilities yourself, such as when you are driving the company truck which runs someone over. It also does not work for certain professionals like doctors or lawyers with respect to their malpractice liability. It does work with respect to contract liability, so long as you sign in the entity's name and do not personally guaranty the contract. It also does not work against liability generated outside the business. The creditors can get your interest in the business and then liquidate it.

Limited liability companies and limited partnerships. If you own an interest in such a company under some states' laws your creditors cannot get your interest in the entity. They can only get a charging order which allows them to get distributions which might otherwise go to you, if there are any.

Tenancy by the entirety. This is a type of joint tenancy between spouses in a residence. The creditors of only one of the spouses cannot get the property.

Bearer stock. In some countries corporate stock can be issued only to the bearer. No records of ownership are kept. If your creditors can't find your assets they can't get them. However, creditors can require you to tell them under oath what you own so use of this device involves potentially breaking the law. You can be sentenced to jail for contempt of court if your answers are shown to be false.

Foreign asset protection trusts. These are trusts set up, usually, in certain foreign jurisdictions where it is difficult to enforce U.S. judgments. In the time it takes the creditor to get anywhere you can move the assets to another country with similar laws. These arrangements are very expensive and at least one U. S. court has ordered the trust owner who lives here to produce the assets or go to jail.

Living Trusts. After death your creditors cannot get the trust assets.

If you are going to use these devices you must do so before you have lawsuits or judgments against you. Transfer of your assets for less than the full value is a fraudulent conveyance and void if you made the transfer to avoid a creditor. Some of these devices also have a waiting requirement before they become effective.

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Donald M. Thompson * 55 W. Monroe #3950; Chicago, IL 60603
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