Common Asset Protection Issues in Chicago
In our asset protection practice, we often encounter clients who come to us after it is too late for us to help them. The cardinal rule of asset protection is that the planning must be put into place well before there is a claim against you or any of your assets. The following are some of the key issues with asset protection, which should be considered in order to determine whether an asset protection plan is right for you:
The plan must be put into place before there is a claim.
After there is a lawsuit filed against you, or you become aware that there is a potential claim against you which could result in a lawsuit, it is too late to engage in effective asset protection planning. The law considers any transfer made after you have knowledge of a claim to be a “fraudulent transfer.” Under Illinois law, any such fraudulent transfers can be voided and the claimant can still access those assets. Therefore, it is essential that you engage in asset protection before you have knowledge of any claims against you.
Insurance is the best asset protection plan.
Though it is generally beneficial to structure your assets so that they are protected from potential creditors, but as an asset protection plan is not a substitute for insurance. Though a well-structured asset protection plan can protect against creditors, it is only effective after a claim arises. The benefits of a liability insurance policy are that the policy acts as a first line of defense against potential creditors and generally provides for the payment of legal fees to defend the claim.
Personal and business assets must be separate.
The use of limited liability companies is extremely valuable in protecting business assets. However, if you place your personal assets into a limited liability company you may put those assets at risk to potential creditors. Under Illinois law, the court can “pierce the corporate veil” if it determines that the corporate structure served no legitimate purpose and was only used as your “piggy bank.” If the court make such a finding, the creditor will have complete access to all those funds in the limited liability company, which would destroy your asset protection plan.
Your estate plan is not a sufficient asset protection plan.
Many of our clients have established living trusts which hold their home and other personal assets. They come to us under the mistaken assumption that these trusts protect those assets from creditors. A common living trust, does not provide the grantor with any creditor protection. To establish a trust that protects the assets from creditors, a much more comprehensive asset protection plan is necessary. Such a plan would include the use of irrevocable trusts and limited liability companies. We are qualified to assist our clients in the establishment of such a plan; however, the asset protection plan would be separate and apart from the client’s estate plan which includes their will and living trust.
Offshore trusts are not foolproof and are very expensive.
Offshore trusts provide a great deal of protection to certain individuals; however, they are expensive to establish and administer. They only make sense for a very small majority of our clients. Moreover, there is no legal, foolproof method to asset protection. Though these plans are very expensive and create many obstacles for any potential creditor, they are not ironclad or guaranteed. Accordingly, most of our clients choose to rely on a domestic asset protection trust and the use of limited liability companies to provide protections against potential creditors.
You must give up control to have asset protection.
Most people do not realize that once they place their assets into an asset protection structure, they will be surrendering control over those assets. The more control a person has over the assets, the easier it is for a court to direct them to pay those assets to a judgment creditor. On the other hand, if the assets are in an irrevocable trust under a trustee’s control, the court may not have the authority to order the trust to pay the judgment creditor. The best way to think of it is: the more control you have, the less protection you have, and vice versa.
Contact a Chicago Asset Protection Attorney
There are many issues that you must consider before determining what, if any, asset protection plan is right for you. As discussed above, the timing of this discussion is imperative. The sooner you can address these issues the better. At Hays Firm LLC we have experienced asset protection lawyers who are knowledgeable in various asset protection techniques. We look forward to speaking with you to discuss your options and what plan works best for you.