For families with significant wealth, estate planning has to take a slightly different focus than for those with less wealth. One of the ways this is evident is the need for wealthy families to make risk management a prominent part of their estate planning efforts. Risk management refers to the task of addressing risks to family assets. Major areas of concern are business liability, personal liability, health care risks and risk to specific assets.
Successful family businesses usually already have various efforts in place to limit liability, not the least of which is the form of organization they select for the family business. Likewise, most wealthy families know how to limit their risk for health crises. The same goes with personal liability and risk to assets. These are important aspects of risk management, but general risk management can be enhanced by a bit of asset protection
Trusts are commonly used as vehicles for asset protection, because they have the ability—when properly structured—to prevent creditors from reaching assets placed in them. To be effective, asset protection trusts must be irrevocable, since retaining the ability to revise the trust terms and control the assets in small ways will give creditors the chance of reaching those assets to satisfy the debt. Some families make use of dynasty trusts for assets for asset protection purposes. There are other options as well.
The key thing with asset protection planning, though, is that it must be done with the correct timing, in order to avoid a fraudulent conveyance. If a court deems that assets were transferred in order to avoid paying a creditor or creditors, it will be deemed a fraudulent conveyance and deemed ineffective. In California, criminal charges may follow. So it is especially important to work with professionals who understand asset protection planning and how to time it correctly.
Source: Forbes, “What Are The Wealthiest Families Doing About Asset Protection? Part 1,” Todd Ganos, September 1, 2013.