A Real Life Asset Protection FAILURE

13. April 2019 12:37 by Junita Jackson in


Successful business owners and doctors face many different kinds of risks. The following real story* illustrates significant exposures in one physician’s planning.


Failure to Adequately Insure and Implement Legal Planning

I was personally involved in this case earlier this year as an anti-fraud consultant.  A doctor’s husband was at fault in a car-pedestrian accident and struck and seriously injured someone walking their dog in the neighborhood and the medical bills and other economic losses incurred by the victim quickly exceeded $500,000, the limits of the doctor’s automobile liability insurance policy. Sadly, the defendant couple had been insured for a greater amount the year before and had canceled their $1 million umbrella policy, presumably to save $400 a year.

Their insurance carrier quickly agreed to pay the limits of their policy and when they realized they’d be personally liable for medical bills, pain, and suffering and other claims, the physician and her spouse went on a “fraudulent transfer” fire drill. They set up an LLC for the office building held in their own names, quit claimed the condo they had purchased for their son to use while in college to him, tried to equity strip their home and incorrectly claimed that the $900,000 vacation home they held as “tenants in common” in another state was unavailable to their creditors. All these moves (except keeping a full equity vacation home in your own name) would have been reasonable, prudent and fully legal if they had been properly done in advance of any problem. In this case, not only were their 11th hour moves ineffective against the existing exposure, they created additional jeopardy in the form of civil and even criminal penalties up to the level of a felony for engaging in conduct designed to delay, hinder or defraud a known creditor. Once the facts were explained to them and the legal counsel advising them on this issue at pre-trial mediation, they quickly wrote a check for $550,000 from their retirement savings to add to the policy limits of their insurance policy and wisely settled the case to avoid very significant additional liability in both the form of an award and in the required costs of defense, which would have easily been six figures.

Important Planning Lessons:

Act Today.

We’ve previously discussed that asset protection and risk management are always proactive and the single biggest mistake that doctors make in their own asset protection planning is doing nothing. You cannot plan against a pre-existing exposure or manage risk after a problem, you can only manage crisis, which is always more dangerous and expensive. Doing so is not only legally ineffective, it is illegal, can create additional civil and criminal penalty risk and even deprive you of your rights to other remedies, like bankruptcy.

Insure Until It Hurts

I’ve previously provided an article on why umbrella policies are vital basic asset protection for everyone, as well as a separate discussion on why umbrella policies on their own are insufficient protection. Insurance, perhaps after compliance and following best practices in all areas, is the first and most predictable and effective line of defense. As mentioned above a specific incident can create multiple exposures including both the award itself and the legal fees required to obtain adequate legal representation. A $1 million personal liability umbrella policy is the bare minimum every doctor should have, ideally more.

Pay Attention to How Assets are Titled

Relying on some form of tenancy is not a substitute for real legal planning that gets assets into appropriate legal wrappers like trusts and LLCs, as two common examples. In this case, as our defendant doctor and her husband are in a community property state, both of them were named with the following result:

1. All their jointly held community assets were put at risk. Like many couples, they married young and the majority of their wealth was earned during the marriage and was exposed regardless of whether titled to her, him, or both of them.

2. The nearly $1 million vacation home, although outside the state, was fully available to the injured plaintiff who had a claim against both of them.

3. The vehicle was fortunately not owned by the medical practice, as it would have been sued as well.

*Actual example, only identifying details have been intentionally changed to preserve the privacy and attorney-client privilege of those involved.

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Asset Protection Planning

10. February 2019 11:30 by Junita Jackson in

Now that you are familiar with the most important asset protection and estate planning concepts how do you create the best plan? Protecting what you have from liability and preserving your estate for your family involves many new concepts for you and it’s not always easy deciding where to begin.

In this section, we will present a summary of the issues and options available-techniques to think about to frame the building of your overall plan. This is the approach we use with our clients to analyze their particular needs and to build an efficient program for asset protection, estate planning, and tax savings.

“Asset Protection and Estate Planning with the Family Savings Trust“

An increasingly popular tool used for asset protection and estate planning is known as The Family Savings Trust.  The term is broadly descriptive of a trust designed specifically to hold and protect a variety of assets against lawsuits and business risks.  It can be very flexible in form and allows for the accomplishment of most important asset protection and estate planning goals. 

“What is the Best Asset Protection Plan for Physicians?“

In our initial discussions with a client, these questions always come up “What’s the best asset protection plan?”  “Are there any plans which are completely bulletproof?”

Like any well-trained professional, I usually duck those kinds of direct and unconditional questions. After all, this is the legal system we’re talking about and when we compound the mixture of judges, jurors, and lawyers,  the results can be unexpected, to say the least.  The  Law is probably a lot like medicine in that respect.  So while we can’t honestly guarantee that the particular plan we design will produce the exact outcome we want, we do know what has happened before in similar situations.  If existing case law and legislation are clear and well developed then an asset protection plan that falls within the pre-set boundaries will have favorable and predictable results.

“Answers to Key Asset Protection Questions“

When I sit with clients to prepare or review their estate planning and asset protection goals in a wide variety of questions and issues arise: What plan is most efficient? How are tax savings created?  How do we protect against the lawsuit and business risk?  Although I have addressed many these topics in detail in previous columns, here are a few starter questions which often arise and which may open the door for further thought and discussion. 

“Asset Protection: Needs Change Over Time“

The type of asset protection planning you need depends on where you are in your career. Because the amount and form of your investments and the particular risks you face will vary over time, your initial planning should be appropriately flexible and capable of adjusting to meet these changing needs. 

“When Is It Too Late For Asset Protection?”

One of the life’s ironies is that the worst time for asset protection planning is when you really feel like you need it the most. Although the law favors and encourages asset protection in most circumstances, there comes a point in financial transactions and legal proceedings when it is no longer permitted. In some cases, this boundary is clearly defined, but often the question of when the remedy of asset protection is still permissible is fuzzy. Experienced planners can follow several guidelines and make some educated guesses about where the line should be drawn in situations that physicians may encounter in their practice. 


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Prenuptial Agreements Key Issue in Asset Protection

28. October 2017 12:04 by Megan Kunis in


One of the issues most likely to adversely affect your wealth is a simple statistic: nearly 50 percent of marriages end in divorce.
With the summer wedding season upon us, it’s time for a simple discussion of prenuptial agreements and why they must be part of every business owner, executive and physician’s risk-management plan.
I answer some of the most common client questions below:

Q: What is a prenuptial agreement or “Pre-nup”?

A: It is a legal agreement entered into between two people before they are married that that can cover a wide variety of issues centered on property rights and assets. In addition to the traditional role that most people think of (dictating the division and distribution of a variety of physical assets and setting terms for any required spousal maintenance at divorce), pre-nups can also cover death, incapacity, estate planning, and a variety of other legal issues including the division and attribution of income earned during marriage.

Q: Can I do it myself or with an online “kit”?

A: You can but you certainly should not. The laws regarding the requirements and enforceability of prenuptial agreements are specific, unforgiving, and vary widely from state to state. Further, some states actually require that each party has their own lawyer in place that they have reviewed the agreement with.

Q: What has to be in a pre-nup?

A. While the laws vary from state to state, these are the most common requirements:
1. Full and accurate disclosure of all assets by each party. Failure to disclose any assets can not only jeopardize the applicability of the pre-nup to that one asset, it can invalidate the entire agreement in the worst cases;

2. The agreement is done well in advance of the marriage and is free of any duress or eleventh-hour presentation that could have made someone feel forced to sign it under the threat of calling off the wedding;

3. Both parties have counselor at least had an opportunity to consult with counsel and were explicitly advised to do so.

Q: I’ve been married and divorced before; do I need a pre-nup for a later marriage?

A. Absolutely. The odds of a second marriage ending in divorce are over 60 percent and climb to 70 percent in a third marriage. Moreover, you will have less time to earn, save, and rebuild wealth than you did the first time around in a substantially more demanding medical business climate.
I routinely talk to doctors and other successful people who have had years of high income and who amassed significant wealth but didn’t investigate protecting it until they had already lost half or more of their hard earned net worth to a divorce. When I ask if they had a pre-nup the response nearly always the same, in fact alarmingly identical, “We didn’t have anything when we got married, we ended up successful and never thought it would happen to us…”
As an asset-protection attorney, I warn clients that there are several things I don’t protect them from. These include not paying taxes or other criminal acts and the person they are already married to, one of the life events that routinely costs people more than 50 percent of their net worth. I also routinely raise this issue with single clients of both sexes and advise them equally to get a pre-nup and to introduce the idea today if they are considering marriage.
I’ve seen too many people that went against the advice of their counsel lose or risk half a lifetime of work because they were afraid or unwilling to have a tough, serious conversation about the possibility of a divorce when they could still do something about it. I’ve also seen a substantial amount of emotional blackmail at play, most commonly the other party saying that it’s insulting, it’s not about money and the most ridiculous, “If you really loved me you wouldn’t ask me to sign this.” My response? If it is in fact not about money, you can sign it, this proves it. While these are certainly not the words of a relationship expert I need you to get your head around this: No one who you actually should marry will let this be a deal breaker.

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LLC Basics For Consumers: Asset Protection

18. October 2017 17:45 by Zach Haris in


Business owners and Doctors are increasingly bombarded with a variety of asset protection information from different sources of varying skill and experience. One common tool that attorneys and non-attorney promoters alike often focus on is the limited liability company or “LLC.”

Unfortunately, because LLCs are relatively simple to create and maintain, they are routinely misused and over-sold, with promises that simply can’t be legally kept. As such, part of our ongoing discussion of asset protection must include the basics every consumer needs to understand before using an LLC for any purpose.
As always, this information is in general terms and is not fact specific to your situation, it also assumes that we are acting proactively against exposures that may occur in the future, that you have a legal right to manage and segregate. Finally, no asset protection strategy is license to commit harm and requires that you have taken steps to reasonably avoid any harm by implementing compliance, safety, and best practices policies in all areas, and that you have adequately insured against reasonably anticipatable risks. Asset protection is always a system and never a single-shot solution, even with an objectively “good” and well-proven tool like an LLC.
The Small Business Administration (SBA) of the U.S. government provides some excellent, consumer-friendly information on a variety of business and legal topics that I borrow from heavily below as an essential introduction.

1. What is an LLC?

An LLC is a hybrid type of formal legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. It can provide what I call two-way protection; it can protect the assets from the unrelated liability of the individual owner, and the owner from the internal liability the asset itself may create, like the liability associated with owning a rental home.

2. Who can own an LLC?


The LLC is highly flexible in this area. The “owners” of an LLC are referred to as “members.” Depending on the state, the members can consist of a single individual (one owner), two or more individuals, corporations, partnerships, or other LLCs.

3. How is an LLC created?

It’s more than just filling out a form and requires guidance on a variety of issues including where it is created, what it’s used for, and how it is run. First, “Articles of Organization” are filed at the appropriate local agency in accordance with laws of the state in which it is created. The articles of organization is a simple document that legitimizes your LLC and includes information like your business name, address for legal service of process and or place of business, and, in some states, the names of its members (more on this in our next discussion).Then, an “operating agreement” is created. Having an operating agreement is highly recommended for LLCs because it provides rules for the LLC’s finances, organization, and smooth operation. The operating agreement usually includes percentage of interests, allocation of profits and losses, member’s rights and responsibilities, and other provisions that will be vital if the LLC comes under external attack in the future or in the event of conflict between partners.

4. How are LLCs taxed?

Unlike shareholders in a corporation, LLCs are not taxed as a separate business entity. Instead, all profits and losses are “passed through” the business to each individual member of the LLC. LLC members report profits and losses on their personal federal tax returns, just like the owners of a partnership would. While the federal government does not tax income on an LLC, some states do. All LLCs must elect to file as a corporation, partnership, or sole proprietorship tax return and may be treated as S-corporations as well.

5. What Are the Advantages of an LLC?

They “limit liability. Members are protected from personal liability for business decisions or actions of the LLC. This means that if the LLC incurs debt or is sued, members’ personal assets are usually exempt. This is similar to the liability protections afforded to shareholders of a corporation. Keep in mind that limited liability means “limited” liability, not “no” liability. LLC members are not necessarily shielded from wrongful acts, including those of their employees.
They have simplified recordkeeping and profit sharing rules. Compared to an S-Corporation, there is less registration paperwork and there are smaller start-up costs. There are also fewer restrictions on profit sharing within an LLC, as members can create operating agreements that allow them to distribute profits as they see fit, equally or unequally, for instance, when members contribute different proportions of capital and sweat equity. 

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Beware Of Domestic Asset Protection Trusts

13. September 2017 14:19 by Megan Kunis in

The Domestic Asset Protection Trust ("DAPT") is an irrevocable trust that allows the settlor (or creator) of a trust to be a discretionary beneficiary.  While this trust has some advantages, it should not be used for Asset Protection as recent litigation has highlighted concerns about the DAPT, as it is often an inadequate entity to protect assets.  The DAPT is often referred to as a "self-settled trust" because the settlor is one of the beneficiaries.  Self-settled trusts allow the trustee to have the discretion of whether to make distributions to the settlor, while simultaneously protecting the assets from the settlor's creditors.The primary goal of the DAPT is to protect the assets of the settlor from their creditors.  The DAPT may also allow a settlor to transfer assets to a trust, preventing these assets from being included in the settlor's gross estate.

The major disadvantages of using the DAPT as a personal asset protector are as follows:

  • In creating a DAPT, you are more susceptible to litigation on your trust (fraudulent transfer claim) as Creditor's use this argument often to break through DAPT trusts to get to debtor assets.
  • The laws of the state where the DAPT is formed will not necessarily apply where the settlor, beneficiaries, or the trust's assets are not subject to the jurisdiction of the state.  In other words, a DAPT is only valid if the settlor and beneficiaries, as well as the trust assets, are all in the DAPT state.  Further, only twelve jurisdictions recognize the DAPT – so there is little uniformity across the United States.
  • State law pursuant to the Supremacy Clause of the US Constitution does not always bind federal courts.  Therefore, DAPT statutes may not protect the settlor against judgments in federal courts or by federal administrative agencies.
  • DAPT, as self-settled trusts, have a longer statute of limitations for creditors to sue on than most other Asset Protection Tools.

On the other hand, the limited liability company (LLC) and limited partnership (LP) are far more adequate entities for Asset Protection planning.

See more on these entities at the following links:

  • Limited liability companies
  • Limited partnerships

If you have any more questions regarding DAPT's or any other Asset Protection Planning tools, feel free to contact our Attorneys.

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Income Tax Liability In Bankruptcy For Appreciated Property

12. September 2017 19:25 by Zach Haris in

People avoid filing Chapter 7 bankruptcy if they have the nonexempt property with significant equity. Yet, consider a debtor who owns real estate that has appreciated and therefore has a built in liability for capital gain. If that debtor files bankruptcy could the IRS hold him personally liable after bankruptcy for the income tax liability associated with the gain on the property?

When a person files bankruptcy all of his property interest is transferred to the Chapter 7 trustee and the property constitutes the bankruptcy estate. The trustee acquires the debtor’s property with its tax characteristics including gain and character. The trustee controls the sale of the property, and the trustee receives the sales proceeds for the benefit of creditors.

The trustee and the bankruptcy estate is liable to pay the tax liability created by the sale of the debtor’s property. The tax is an administrative expense. The debtor is not liable for tax on the sale of property he had conveyed to the bankruptcy estate upon filing bankruptcy. A trustee may avoid tax liability by abandoning the property instead of selling it.

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