If you ask five attorneys this same question, you would get five different responses. The same could be said about asset protection. This "same question, different answer" phenomenon is partly due to the fact that laws constantly evolve and change; that asset protection is as much an art as a science; and that there is more than one way to effectively protect one's assets. Moreover, one must always consider the laws of the client's state as well as federal law. Finally, no two clients or their situations are precisely the same. Still, some fundamental components are common to every sound asset protection plan.
Asset protection is far more complex than most people, and even some planners would believe. The less effective planner will only address the "what do we do and how do we do it" aspects of asset protection. However, there are actually five dimensions that we must address in order to construct a truly effective plan: these are the What, When, How, Why and Where of assetprotection.
The 'What' of asset protection covers what assets we wish to protect.
The 'When' of asset protection deals with when to implement a plan in relation to a creditor threat. If one implements a plan before creditors threaten, the plan may be relatively simple yet still effective to repel a future creditor attack. Planning after the storm clouds have gathered usually requires more sophisticated planning and often more extreme measures, and sometimes (depending on the circumstances) the plan has less of a likelihood to succeed. The 'When' of asset protection then primarily deals with fraudulent transfer law.
The 'How' relates to how we implement the three core strategies. The 'How' of asset protection also deals with how we maintain a plan once it is in place.
The 'Why' of asset protection? In short, the best asset protection plans have an ostensible, viable, bona fide reason for being implemented other than asset protection itself. Asset protection is the icing on the cake, so to speak. Asset protection only for asset protection's sake may lead a judge to consider the planning an attempt to delay, defeat, or hinder a creditor, which is a violation of the fraudulent transfer law. In this instance, the judge typically sets aside the plan, allowing a creditor to reach supposedly protected assets.
The 'Where' of asset protection deals with choice-of-law, conflict-of-law, and jurisdictional issues. For a sample jurisdictional issue, consider assets located outside the U.S. and outside the reach of a U.S. judge. An example of a choice-of-laws issue may be someone who sets up a Nevada Corporation, with Nevada-based management, yet he and his assets are in Missouri. What laws will be used to determine how those assets are treated for debtor-creditor purposes when the stockholders are sued in Iowa? Finally, aconflict-of-laws issue could arise when a resident of a state (for example,Texas) is sued in federal court. Will Texas' unlimited homestead protection hold up when a Texas citizen is sued by the FTC in a federal suit? You can see that protecting one's assets takes considerable thought to handle the many variables.