Some form of asset protection should be included in every comprehensive estate plan. Regrettably, however, many folks foolishly opt for the cheapest estate plan they can find, whether it be a do-it-yourself plan or some form downloaded off the Internet. Others rely upon non-attorneys such as paralegals or financial advisers. Even some attorneys are guilty of poor planning work. They are usually lawyers who practice in several different areas of law, such as divorces, criminal, personal injury, etc. and also “dabble” in estate planning. They will undoubtedly lack the education, training and experience to provide good counsel on the myriad aspects of asset protection.
For these reasons, not all estate plans are created equal. The best bet is to work with an experienced and qualified estate planning attorney who understands and creates comprehensive plans.
Let’s look at some basic ways to protect your own assets. Later, we will focus on protecting your intended beneficiaries.
Rule number 1: Don’t Do Bad Things.
One aspect of asset protection is simply to avoid getting sued. Notwithstanding the sometimes hysterical claims about the “lawsuit explosion” and “frivolous lawsuits”, the vast majority of civil lawsuits filed are because someone thinks that they have in been wronged in some manner and they seek, as is their right, a remedy from our legal system. The claims can be based upon negligence, e.g., an auto accident or slip and fall, or due to an intentional wrongful act, such as an assault or molestation, or even a dispute over the performance of a contract. In many such cases, the person sued has at least arguably done something wrong. The purpose of the lawsuit is to seek redress, often money damages, but filing suit is no guarantee of recovery. However, most persons who are prudent and follow the “Golden Rule” will find that their risk of being sued is greatly diminished.
Rule number 2: Define your relationships in writing.
A common source of legal disputes, especially in the business world, are disagreements by parties to a transaction, whether it be a purchase and sale agreement, employment contract or lease between a landlord and tenant. The problems often arise because the “agreement” was oral and now the parties don’t agree about the terms of that oral agreement. Sometimes, even a written agreement itself is faulty, often because it does not adequately address the issue that is now disputed. Once again, this is far more likely going to be the case where the written contract relied upon was some form contract found in a book or on a do-it-yourself website, CD or book containing generic legal forms or a low cost paralegal who is likely to have, at best, minimal legal knowledge. Would you allow an ambulance driver to perform your heart surgery? They have some health care training, but not enough to perform surgery.
One way to significantly reduce the chances of a disagreement over an agreement ending up in the court house is to have a well crafted written agreement whereby the rights and responsibilities of the parties are clearly defined. Even if one party is no longer pleased with an agreement he or she has entered, it is far less likely to turn into a lawsuit when the terms of the agreement make it clear they will have little chance of winning.
How does one create a well crafted agreement? The answer is to consult with an attorney who is well versed about the subject matter of the agreement, whether it be employment law, copyright, or any other aspect of business.
In Part 3, we will look at other steps to take to protect your assets.