The Wise and the Wary
Who can you trust? Deb hears this question over and over again in her professional practice as an elder law attorney and a fee-only, holistic financial planner. Let Deb teach you how to protect yourself and your assets from those who might not have your best interests at heart. [Editor's note: Deb no longer contributes to Silver Planet, but we have made her archived blog entries available as a service to our readers.]
I Want All My Property to Go into a Trust So That I Can Avoid Creditors
Misconception #7 of “The 12 Biggest Misconceptions of Estate Planning Clients”
The issue of creditor avoidance is very complicated, with federal law,
state statutes, IRS rulings, and court rulings all weighing in about
who gets what when there’s not enough to go around. Start reading the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, move
on to your state’s statute of frauds, and then the Fraudulent Transfer
Act, and you will be peeling only the first few layers of the onion.
You may think that this doesn’t concern you, since you don’t see
yourself as a debtor. Maybe you’ve already paid off your mortgage, and
you pay off your credit card balance every month, so you think you can
stop reading. Not so fast.
Liability may arise from contract obligations, property ownership, accidental personal injury, or car accidents—or from the actions of your teenage children. To protect yourself from whatever unwelcome event may occur in the future, make sure your liability insurance and umbrella policies are current.
Also, your biggest potential creditor may be . . . your spouse! Ask any divorce attorney. And there’s no insurance policy currently on the market for that.
So, to phrase the misconception as a question: Can you put all of your money in a trust, while still accessing the money for your use and pleasure, and make it inaccessible to creditors? There are so many caveats and complications in attempting to achieve that magical state, that for most of us, it’s best to just answer no. If it were that easy, we’d all be doing it, and our economic system would fail within the week. The goal of all the creditor/debtor laws and rulings is to balance the rights of creditors with the rights of debtors, so that our economic system can function smoothly and fairly.
If you still want to try to hide your money from legitimate creditors, by all means, pay your asset protection advisor a visit. But don’t be surprised if he wants his rather substantial fees up front.
By Deborah Hoskins, JD, CFP
The Wise and the Wary Blog
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