- It seems that the first step to defensive planning is to get your assets out of your own name. Correct?
Yes, unless your assets are exempt, title them to a protective entity. As long as the entity itself is not a debtor, then a subsequent transfer by that entity will not be considered fraudulent under the UFTA. Accordingly, when a creditor threat arises, you can then reinforce the entity or transfer the asset to a new entity, with less fraudulent transfer concerns because the UFTA only considers transfers the debtor makes as being fraudulent. Furthermore, restructuring an entity so that a creditor of the entity's owner cannot reach the entity's assets for its owner's debts usually does not involve a transfer, and is therefore not considered to be a fraudulent transfer in most states. Even if it is, as long as the entity is not a debtor, then a transfer from the non-debtor entity to another entity is usually not considered fraudulent under fraudulent transfer law.
- For protection why can't I just title my assets to someone else so they can't be claimed by my creditors?
Using 'straw men' is always poor planning. First is the fraudulent conveyance pitfall. Gifting your assets to a friend or relative after you're sued with the tacit understanding that they'll later return your assets seldom works. Even if you title your assets to a 'straw' before you have creditors, how do you know that your 'straw' is safer from lawsuits than you? Nominee 'straws' have their own marital problems, creditors and lawsuits. Your straw can easily lose your assets to their creditors. You also incur a gift tax when you transfer assets to someone other than your spouse. And your nominee straw incurs a gift tax when he re-transfers your assets to you. The third problem is that you can't be certain that your nominee will return your assets. Not every straw or nominee is trustworthy.
- What about titling marital assets to my spouse who has less liability exposure?
Having a less liability-prone spouse own all the marital assets has fewer drawbacks. And sometimes it is sensible to title the family assets to the less vulnerable spouse. But this too raises problems. You may title your million dollar home or other assets to your spouse for protection on the belief that your spouse won't get sued, but how do you really know this? This arrangement also has estate planning disadvantages. When marital assets are titled to both spouses, the spouses can more advantageously plan their estates because each can use credit shelter trusts to maximize their death tax credits. When the assets are titled to only one spouse, only that spouse can claim his or her estate tax exemption. The remainder of your spouse's estate will be taxed. This can cost your heirs a considerable estate tax. Assets titled to only one spouse forces a lopsided estate plan, and you lose tax planning options.
Nor are assets titled to one spouse necessarily safe from the debtor spouse's creditors. Even if the liability arose after the debtor's assets were titled to the 'safe' spouse, a creditor might successfully argue that the debtor-spouse has an equitable or beneficial interest in at least part of the property under a constructive or resulting trust theory; namely, that the spouse holding title is a trustee for the debtor-spouse. This argument is particularly likely to succeed when the debtor-spouse's funds purchased the property or paid the mortgage, maintenance or property upkeep. When the money invested in the asset came from the debtor-spouse, the property is not truly the property of the other spouse. If a debtor-spouse's assets are traceable to property, the defendant's spouse's creditors can claim that property. You don't want to gamble on further litigation over these sloppy issues. The best plan is free of these possible challenges. Only in a few cases do we suggest titling all the marital assets to one spouse.
Contact us today for a complimentary preliminary consultation regarding your Asset Protection options.
The Presser Law Firm P.A.
6199 N. Federal Highway, Boca Raton FL 33487
(800) 999-9992 or e-mail firstname.lastname@example.org