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In Asset Protection, Timing is Key

The worst time to consider asset protection is when you actually need it.

Attorneys and other professionals involved in the area of assisting clients with the establishment of legal entities to own assets, more often than not consider themselves engaged in dreadful conversations. A typical example of such a conversation would be; a client experiencing financial difficulties and therefore contacting his financial planner to to transfer the ownership of his sports-car and beach-house to a legal entity to avoid that these possessions might be confiscated.

These conversations are out of place, because at this particular point in time, help is no longer possible. Asset protection or financial planning is legal and beneficial; however it must be implemented before areas of your possessions are under attack.

Although it is perfectly acceptable to use asset protection tools to protect your assets, at a certain point in time asset protection could become illegal. Under certain circumstances, it is clear when asset protection is permissible; however sometimes this is not so obvious. The general rule is, you cannot not use asset protection to avoid paying an existing debt or claim.

The use of asset protection tools to reduce the risk of loss forms part of proper financial planning. The use of trusts, corporations and private foundations to protect assets, is beneficial and important because it helps individuals control their potential losses, which might arise from their professional and business activities. The key factor in asset protection is when and why the asset protection plans should be implemented.

The term fraudulent transfers, found its origin 400 years ago in England (Twyne’s case) when a farmer intended to defraud his creditors by selling his sheep to a man named Twyne, while retaining possession of the sheep. A debtor is fraudulent as to a creditor if the debtor makes a transfer with the purpose to hinder, delay or defraud the creditor.

Sometimes it is obvious when the implementation of an asset protection strategy would be considered unlawful. You must at all times retain the ability to comply with and meet your current outstanding obligations. If you are unable to comply with an existing financial obligation and it can be proven, that your asset protection plan was meant to avoid this payment, your creditor can apply to a judge to revoke your asset protection plan and confiscate the assets, which has been set aside, via your asset protection strategy.

Although the law does not allow for you to use asset protection to evade a current debt, it does allow you to use asset protection strategies to avoid liability from future, unanticipated creditors. A distinction should be made between existing obligations and potential future unforeseen obligations. Loans and other contracts entered into after an asset protection plan has been implemented, fall normally outside the scope of fraudulent transfers, this provided you did not mislead the other party to the transaction.

If it can be proven that an asset protection plan was implemented with the intent to avoid paying an existing or anticipated claim, the fraudulent rules embedded in most legal systems, could be used to reverse this asset protection plan. On the other hand, it is equally clear that asset protection is both legal and effective to protect your assets against future unforeseen risks.

Sadekya Fiduciary Partners.

Rudsel. J. Lucas TEP, Managing Director
The Triangle Office Building, Hoogstraat 20-22
P.O. Box 4750
Telephone: 599 9 4652698