Technically, asset protection planning is the process of organizing one’s assets and affairs in advance to guard against risks to which the assets would otherwise be subject. The phrase “in advance” warrants strong emphasis. One who is planning to protect assets must be cautious and avoid the negative implications that may follow if there are creditors who are entitled to remedies under applicable fraudulent transfer and similar laws. Asset protection planning may be applied to protect every type of asset, including an operating business or a professional practice.

Safeguarding assets from the many risks involved is not a new idea or planning goal. Asset protection is more in the forefront of planning because of expanding theories of liability. New liability theories are sometimes coupled with results-oriented judges and juries who decide things based more upon a perceived desired outcome than upon the law. An ever-present concern includes some of the high dollar amounts of jury awards that we hear about today. Asset protection must be addressed in the new legal arena because of concerns with the adequacy of traditional forms of protection. Although there are arguments for and against the contingency fee system, it is undeniable that our current legal system, coupled with contingency fees, has helped contribute to the litigation explosion. For this reason, asset protection planning is increasingly important.

The goals of the asset protection component of IEP are varied but all must be addressed to create a high-quality plan. The plans must be user-friendly or they are doomed from the beginning due to the client’s discomfort with an unfriendly plan. Since being a party to a lawsuit is often a loss in the client’s mind, plans must be drafted to deter litigation. The plan must provide an incentive for an early and cheap settlement if it fails to deter the litigation in the first place. The net effect of the deterrence or an early settlement is to level the litigation playing field between the plaintiff and the defendant. This leveling enhances the client’s bargaining position. Any plan must be flexible enough to provide options as the game is played because litigation may not come from the originally considered source. The overall goal of any plan is for the client to ultimately win the game. Once goals are discussed with the client, the planner should incorporate them into both the asset protection and estate planning components of the IEP.

There is no one asset protection planning tool or technique that universally protects all of a client’s assets, so a plan needs to involve a mix of the various tools and techniques available to the planner. The Engel Ladder of Asset Protection Vehicles identifies the various tools available to the asset protection planner and arranges them in ascending order of efficacy. At the bottom of the ladder is gifting, midway up the ladder is the family limited partnership, and close to the top of the ladder is the foreign integrated estate planning trust (IEPT).