There are over 20 million civil lawsuits filed each year in the United States. Additionally, there are about 11,000 personal injury suits filed with Colorado courts each year. We truly live in a litigious society. In an age where large legal judgments are often fodder for our 24 hour news cycle, the average American has become increasingly aware of their chances to win the "lawsuit lottery". Due to their financial success and high risk occupations, professionals are often the target of such suits. In our current economic environment, high risk professionals such as doctors, surgeons, physicians, dentists, optometrists, pharmacists, veterinarians, business owners, and contractors, simply cannot afford to ignore the threat of litigation. For these and other high risk professionals, asset protection planning and wealth preservation planning are a necessity.
Medical professionals are particularly vulnerable to malpractice liability. According to an ABC News article dated August 5th, 2010, a survey by the American Medical Association (AMA) found that more than 60% of doctors over the age of 55 have been sued at least once during their career. Furthermore, 90% of surgeons age 55 and older have been sued at least once. The survey also found that an average of 95 medical malpractice suits have been filed for every 100 physicians now in practice. In other words, it’s not a matter of if, but when. Without an effective asset protection strategy in place doctors and other high risk professionals run the risk of subjecting their personal assets to lawsuit liability, which can have devastating effects on their families.
Asset protection is the process of organizing assets in a manner which safeguards property from potential creditors. Asset protection planning involves taking non exempt assets (assets subject to lawsuit judgments) and repositioning them outside of the creditor’s reach as exempt assets. It should be noted that transfers must occur prior to any claims by creditors so that the transferor is not subject to liability under fraudulent transfer laws.
Asset protection is an often misunderstood area of the law. In fact, overly complicated asset protection plans are often presented to professionals through what I would call a "hard sell scare tactic sales pitch". Although asset protection does have its complexity, a solid asset protection plan should always include a heavy dose of common sense. Effective asset protection also requires knowledge in several areas of the law including: Estate Planning, Estate Tax, Business Law, Business Succession Planning, and Probate Law. Asset protection is typically associated with life planning, while estate planning is typically associated with end of life planning. However, a comprehensive wealth preservation plan integrates both disciplines in order to protect assets now and in the future.
Asset protection should never be about secrecy, hiding assets, evading taxes, or a strategy to avoid legitimate creditors by a fraudulent transfer.
Buell & Ezell works with each client to create an asset protection plan that effectively integrates their asset protection, estate planning, business planning (or professional practice business structure) and financial planning goals in our Wealth Protection Plan. The foundation of this plan includes proven asset protection strategies, proven estate planning strategies, and common sense. Considering that there is no silver bullet when it comes to asset protection planning, this plan may utilize a variety of legal tools, including: Limited Liability Companies (LLCs), Corporations, Buy-Sell Agreements, Wills with Credit Shelter Trusts, Family Limited Liability Companies (FLLCs), Domestic Asset Protection Trusts (i.e., Wyoming), Annual Exclusion Gifting, Real Estate Deed Transfers, 529 College Savings Plans, Life Insurance, Annuities, Malpractice Insurance, General Liability Insurance, Long Term Care Insurance, IRA's, 401k's, and Pension Plans.
Asset protection is often associated with offshore trusts in other jurisdictions such as the Cook Islands, Nevis, the Cayman Islands, the Isle of Man, Bermuda, etc. Buell & Ezell never advises clients to utilize offshore trusts for asset protection planning for several reasons. First, the use of offshore trusts or offshore investments can give rise to IRS penalties for tax evasion. Secondly, several landmark asset protection cases have resulted in incarceration when the defendant refused to disclose the location of the offshore assets. Thirdly, there are proven asset protection strategies available on our own U.S. soil which make the use of such trusts unattractive, including Domestic Asset Protection Trusts in Wyoming and other jurisdictions. And lastly, considering the thugs and hucksters often associated with offshore trusts, you are gambling that your assets will actually be there when you need them.
Years ago, when the LLC was fairly new, states with strong LLC statutes on the books such as Delaware, Nevada, and Wyoming were good choices for LLC formation jurisdiction. However, considering the strength and liability protection offered by the Colorado Limited Liability Company Act, legal formation in Colorado is now favored in most cases for Colorado clients. The same can be said for Colorado corporations as well. Furthermore, legal entity formation in a foreign jurisdiction adds to the cost and complication of the formation process and typically offers no additional asset protection advantages. Additionally, if you are doing business in Colorado you will still be subject to Colorado's business laws and legal entity formation requirements in addition to the requirements of the foreign jurisdiction.