Asset protection: Today's shield against tomorrow's lawsuits

By Maurice Offit, CPA

We live in a world in which there are too many lawsuits. Years ago, it was uncommon for someone to be sued. This is no longer the case: "If you have a phone, you have a lawyer."

Fortunately, through asset protection planning, you will be able to develop for your clients a plan for protecting their hard-earned wealth from the lawsuits they may face in the future. But to be effective, the planning has to be completed before the claim arises. Therefore, the time for your clients to act is now.

Most asset protection planning practitioners employ a number of techniques in designing asset protection plans. In climbing the "stairway of asset protection" from bottom to top, the techniques, from the most basic to the most sophisticated, typically consist of:

tenants by the entireties ownership;
ownership of statutorily protected assets;
use of limited partnerships and limited liability companies; and
use of asset protection trusts.

The fees charged for establishing an asset protection plan vary from practitioner to practitioner. A plan that incorporates the use of tenants by the entireties ownership and / or ownership of statutorily protected assets typically costs no more $1,500. A plan that relies upon limited partnerships and limited liability companies for protection generally ranges in price from $2,500 to $3,500. A plan that makes use of asset protection trusts usually costs about $25,000. The cost of the plan needs to be compared to the benefits the plan provides.

While asset protection planning is appropriate for any client who wants to be protected against future claims, most clients who proceed with asset protection planning fall into one of the following categories:

Anyone who has accumulated wealth, as wealthy clients may be a target for unscrupulous litigation. Unfortunately, more unscrupulous suits are filed in the United States than any other place in the world. In all likelihood, this is due to the fact that attorneys can be engaged in the United States on a contingency fee basis. As a result, claimants can engage counsel without having to be concerned with the payment of legal fees separate and apart from any recovery that they receive.
Anyone who has an exposure to liability for professional malpractice claims. While almost all professional service providers have malpractice insurance coverage, asset protection plans provide protection from claims that exceed policy limits or claims that are denied because of gaps or lapses in coverage.
Fiduciaries such as personal representatives of estates, trustees and guardians, as fiduciary coverage can be prohibitively expensive (if it can be obtained at all).
Present or former members of corporate boards of directors who need asset protection planning for protection against suits brought by stockholders.
Sellers of closely held businesses who want to protect themselves from claims that could arise after closing.
Present or former owners of real estate containing hazardous substances, as insurance coverage for hazardous substance claims is in many instances either non-existent or prohibitively expensive.
Clients who are about to get married but fear the ramifications of requesting a fiancé to sign a prenuptial agreement

Any accountant who ignores asset protection planning has made an unwarranted assumption namely, that the assets the client owns today will be safe from the creditors of tomorrow. The fact of the matter is that in a highly litigious society such as ours, most clients have a significant chance of being sued, and if the suits involve claims in which insurance coverage is either non-existent or insufficient, the client's assets are at risk.

Accountants should, therefore, impress upon their clients that asset protection planning is an integral part of any financial and estate plan. Any plan that fails to take asset protection planning into account may be flawed, as even the best designed financial and estate plan is of no use if creditors have attached all of the client's assets.

Maurice Offit is a CPA, attorney and a founding partner of the law firm Offit, Kurman, Yumkas and Denick.

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