Transferring the bulk of your assets to your spouse and/or children, especially after something has happened, will not protect your assets from a lawsuit. Even if it did protect you from your liability, transferring your assets to your spouse and/or children opens up another Pandora’s box. Keeping in mind that there are thousands of lawsuits filed daily due to things like business disputes, employment grievances, “slip and fall” and auto accidents, consider this scenario: Let’s suppose that you transfer all of your assets to your 18-year old son who causes an auto accident. Several other cars are involved in the accident and several injuries are incurred. Chances are high that the other parties will come looking for the driver with the deepest pockets. If your son “owns” your house and business, a sympathetic jury will undoubtedly take the possession away from your son in order to teach him a lesson for his reckless driving. The same holds true for spouses, parents and even friends. Also, gifting is limited to about $15K annually, per spouse, per donee. Gifts over that amount must be documented with a gift tax return. Failing to do so will result in you having to answer the question, “Are you lying now regarding the date and validity of this transfer, or did you cheat the I.RS.?” Many consumers using do-it-yourself planning discover these unpleasant scenarios the hard way.
Another common scam is promoters of LLC mills set up LLCs that you or a friendly party own and then have that entity record a “lien” against some valuable asset, typically real estate. While validly recorded and executed liens do have great deterrent power against creditors, they have to be backed by a real exchange of value. So if your brother-in-law owns a Nevada LLC that holds a lien on your home for most of its value, there should have been some exchange or “consideration” roughly equal to the amount of the lien. “Your sister has a $300K lien against the $400K home you live in? Then where’s the $300K she gave you, as a bank would have in a real home equity loan? She didn’t give you anything in return? Now there’s a real problem and they’ll take the house.”
Much of the content in this press release was taken from Ike Devji’s article Common Flaws of Asset Protection Planning with permission.