Ryan Wilson speaker-- General asset protection subject of ICBA Probate Section

By Roberta M. Gubbins Legal News "Asset protection is more important than in the past because of our hard times," Ryan Wilson said addressing the members of the Ingham County Bar Association Probate Section gathered at the Michael Franck Building in Lansing for lunch and learning. "The goals of asset protection are (1) to put the assets out of the reach of future creditors, (2) to maintain some level of control over the assets, and (3) to create an asset reserve or a safety net so that if there is a problem, they (creditors) don't get everything," Wilson said. The best time to plan is before there are creditor issues, which means "listening to your clients so you are aware of their concerns. For example, if the parents know the son has a lot of debt, or a daughter is headed for divorce, it may be better to set up a trust to protect the inheritance." "The traditional vehicles," Wilson noted, "are not always protected. For example, joint tenancy may leave you exposed to creditors, however, a joint tenant will get the property. For bank accounts, a joint asset is available to the estate if the estate is solvent. Michigan has a Joint tenant with right to survivorship, which creates a life estate in the survivor and is a little more difficult asset to get at. Tenancy by the entireties is moderately effective if the debt is that of one of the spouses. Life insurance is not effective in protecting the asset." "Michigan has trusts that are helpful for beneficiaries. The new trust code has some provisions in part five, which define a support trust, a discretionary trust, and spendthrift provisions. The code also talks about creditors that have preference, so-called super-creditors, such as the State of Michigan, the US government, Qualified Domestic Relations Orders, or (orders of) child support. While creditors can reach some trusts, they can't get at discretionary trusts." "Family Limited Partnerships is a method used to protect assets. The basic idea is that the creditor can only get what is distributed. The partner can receive a loan or be paid for services, which is not a distribution. Even if the creditor gets an order to collect, it is not very valuable, but can be used as leverage to reach a settlement with the creditor. In terms of asset protection, don't have a single member LLC. Make it as formal as you can--create certificates of ownership, have meetings, and keep minutes." "Retirement plans," he said, "are better way to put some assets away. They have protection inside and outside of bankruptcy. There are laws that protect them from being attached. IRAs have no protection outside of bankruptcy meaning creditors can reach those assets." "Michigan does have the fraudulent transfer act, which includes future creditors. The intent can not be to hinder, delay or defraud creditor. We must be careful how we counsel people in regard to asset protection. You should discover whether there are any lawsuits out there--either filed or threatened. This is really an area of law where you are setting up barriers, but it is not bullet proof." Wilson's planning tips are: * Don't put everything into one technique, spread it around. * Be pro-active--plan ahead. * Have business reasons for the LLCs and follow formalities for entities and documents. * Review possible inheritances and change to discretionary spendthrift trusts if there are beneficiaries with problems. * Avoid distributions to the debtor from life insurance, IRAs, or pension plans because the creditor can get them * Bifurcate joint bank accounts and use debtor's assets for living expenses. * Social Security is exempt from garnishment--it is best to have it deposited in a separate account and not be co-mingled with the other living expenses. * Disclaimers or the ability to disclaim an inheritance is possible to avoid creditors. * Limited powers of appointment--if in the trust, the person with the power can modify the trust provisions giving you flexibility. "In terms of general asset protection, I think it is a growth area for estate planners," he said. "Right now we have no estate tax so there is less of a need to avoid estate tax, but there is a need to protect assets in these tough economic times. The key thing is to plan ahead, use multiple techniques, and put up as many barriers as you can to defeat creditors." The next Probate Section meeting will be held on April 20th at the Michael Franck building in Lansing. Marlene Teahan will present an update on the new Probate Court Rules and Forms. Ryan Wilson can be reached at (517) 377-0897 or rwilson @fraserlawfirm.com. Published: Thu, Apr 1, 2010

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