Trust in Asset Protection

Caution: Your Traditional Asset Protection Plan is Set Up to Fail

You may be surprised to learn that not only has asset protection planning been around for a long time, but you have already engaged in it at some point during your life.  In fact, you probably have one or more types of traditional asset protection planning in place at this very moment.  The problem is in many cases the type of planning you have right now won’t be enough to protect you and your family.

What is Asset Protection Planning?

Asset protection planning is done to preserve and protect your property in advance of a claim, or the threat of a claim.  In other words, this type of planning will not be effective to shield your property from an existing claim.  Instead, it must be done long before there is even the hint of a claim.

The goals of asset protection planning are to provide an incentive for settling a claim, improve your bargaining position, offer options when a claim is asserted, and, ultimately, deter litigation.

What Is Traditional Asset Protection Planning, and Why Does It Often Fail?

There are several types of traditional asset protection planning that have been around for years.  The most common is liability insurance – automobile, homeowners, umbrella, officers and directors, malpractice, and the like.  You probably have at least one liability policy in place right now.  Unfortunately, liability insurance may actually encourage a lawsuit since it is perceived as “easy money.”  Aside from this, liability insurance often fails because the coverage is inadequate, the policies have extensive exclusions, or the carrier becomes insolvent.

Another common type of traditional asset protection planning is the use of a business entity, such as a corporation, to segregate business assets and liabilities from personal assets and liabilities.  But while a corporation may shelter your personal assets from a lawsuit filed against the corporation, the opposite is not true – if you, as the shareholder of a corporation, are personally sued, your shares of stock in the corporation are not protected from a judgment entered against you.  Of course, it is possible that if your corporation fails to observe certain formalities, then the “corporate veil” may be pierced and your personal assets will become vulnerable to a judgment entered against the corporation.

The final common type of traditional asset protection planning is established under state law and allows residents to exempt specific assets from the claims of creditors.  This may include protection for property owned jointly by spouses (“tenancy by the entirety” ownership), a primary residence (“protected homestead”), the cash value of life insurance, investments held in a retirement account, and annuities.  Nonetheless, these state exemptions are often subject to limitations, such as placing a cap on the value or land area of the protected homestead.

What Should You Do?

You may think that only wealthy people need to do advanced estate planning.  The truth is anyone who has accumulated any amount of wealth can be sued for just about any reason.  The only way to protect you and your family is to engage in more advanced forms of asset protection planning such as irrevocable trusts and sophisticated business structures.

This office can help you go beyond traditional asset protection planning by creating a comprehensive plan that will be custom-tailored to your family situation and financial status.  Please call today to arrange for your asset protection consultation.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

The Shocking Truth About Asset Protection Planning

Some view asset protection planning with a skeptical eye.  They believe there is a moral obligation to pay one’s debts.  They think that asset protection planning is immoral because it prevents a creditor from collecting on a judgment entered by a court.
The truth is the U.S. justice system is unpredictable.  Defendants are faced with ever-expanding theories of liability, being sued just because they appear to have “deep pockets,” and judgments entered against them based on desired outcomes instead of the law.

What, then, can you do that will ethically and legally protect your hard-earned assets from creditors, predators, and lawsuits?

What Asset Protection Planning Is, and What it Is Not:
The first step in protecting your assets is to understand that planning to preserve and secure your property in advance of a claim, or the threat of a claim, is a legitimate form of wealth planning. A few of the goals of asset protection planning are to:


  1. Provide your creditor with an incentive for settling a claim;

  2. Improve your bargaining position;

  3. Offer you options when a claim is asserted; and

  4. Ultimately, deter your creditor from filing that lawsuit.


On the other hand, asset protection planning is not about avoiding taxes, keeping secrets, hiding assets, or defrauding creditors.  In addition, it will not be effective to shield your property from an existing claim, and it must be done long before there is even the hint of a claim. 

When Done Right, Asset Protection Planning is Completely Legal and Ethical:
Using all legal tools available to help clients protect their hard-earned assets from future claims is consistent with the rules of professional conduct that govern the actions of attorneys.  In fact, these rules require attorneys to pursue representation of their clients with diligence and advocacy.  What these rules do not allow, however, is assisting or counseling a client in fraudulent or criminal conduct.  Therefore, you must be wary of an attorney who offers to assist you in protecting your property after a lawsuit has already been threatened or filed.  This type of conduct is not ethical or legal.
The Final Truth About Asset Protection Planning:

While you may drive carefully and steer clear of barroom brawls, unfortunately you cannot avoid all activities that create liability.  Putting together a plan to preserve and protect your assets in advance of a claim is a completely acceptable and, more importantly, legal form of wealth planning.

We are experienced at helping clients design and implement asset protection plans that are custom-tailored to each client’s family situation and financial status.  Please call us if you have any questions about this type of planning and to get started on protecting your assets from future creditors, predators, and lawsuits.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Three Liability Planning Tips for Physicians Anyone Can Use

Whether you are a physician or not, you probably know that the practice of medicine is a profession fraught with liability.  It’s not just medical malpractice claims either – employment related issues, careless business partners and employees, contractual obligations, and personal liabilities add to the risk assumed by a physician in private practice.  Unfortunately, in our litigious society, these liability risks are not unique to physicians.  Business owners, board members, real estate investors, and retirees need to protect themselves from a variety of liabilities too.

Below are three liability planning tips anyone – physicians and non-physicians alike – can use to protect their hard earned money.

Tip #1 – Insurance is the First Line of Defense Against Liability:

Liability insurance is the first line of defense against a claim.  Liability insurance provides a source of funds to pay legal fees as well as settlements or judgments. Types of insurance you should have in place include (as applicable):


  1. Homeowner’s insurance

  2. Property and casualty insurance

  3. Excess liability insurance (also known as “umbrella” insurance)

  4. Automobile and other vehicle (motorcycle, boat, airplane) insurance

  5. General business insurance

  6. Professional liability insurance

  7. Directors and officers insurance


Tip #2 – State Exemptions Protect a Variety of Personal Assets From Lawsuits:

Each state has a set of laws and/or constitutional provisions that partially or completely exempt certain types of assets owned by residents from the claims of creditors.  While these laws vary widely from state to state, in general you may be able to protect the following types of assets from a judgment entered against you under applicable state law: 


  1. Primary residence (referred to as “homestead” protection in some states)

  2. Qualified retirement plans (401Ks, profit sharing plans, money purchase plans, IRAs)

  3. Life insurance (cash value)

  4. Annuities

  5. Property co-owned with a spouse as “tenants by the entirety” (only available to married couples; and may only apply to real estate, not personal property, in some states)

  6. Wages

  7. Prepaid college plans

  8. Section 529 plans

  9. Disability insurance payments

  10. Social Security benefits


Tip #3 – Business Entities Protect Business and Personal Assets From Lawsuits:

Business entities include partnerships, limited liability companies, and corporations.  Business owners need to mitigate the risks and liabilities associated with owning a business, and real estate investors need to mitigate the risks and liabilities associated with owning real estate, through the use of one or more entities.  The right structure for your enterprise should take into consideration asset protection, income taxes, estate planning, retirement funding, and business succession goals.

Business entities can also be an effective tool for protecting your personal assets from lawsuits.  In many states, assets held within a limited partnership or a limited liability company are protected from the personal creditors of an owner.  In many cases, the personal creditors of an owner cannot step into the owner’s shoes and take over the business.  Instead, the creditor is limited to a “charging order” which only gives the creditor the rights of an assignee.  In general this limits the creditor to receiving distributions from the entity if and when they are made.

Final Advice for Protecting Your Assets:

Liability insurance, exemption planning, and business entities should be used together to create a multi-layered liability protection plan.  Our firm is experienced with helping physicians, business owners, board members, real estate investors, and retirees create and—just as important—maintain a comprehensive liability protection plan. If you have a Revocable Living Trust and it has been a few years since it has been reviewed, then we can help you determine if a Revocable Living Trust is still the right choice for your estate plan. If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

How to Easily Integrate Asset Protection Trusts into Your Estate Plan

Asset protection has become a common goal of estate planning.  Asset protection trusts come in many different forms and can be used to protect property for your use and benefit as well as for the use and benefit of your family.

What is An Asset Protection Trust?

An asset protection trust is a special type of irrevocable trust in which the trust funds are held and invested by the Trustee and are only distributed on a discretionary basis.  The purpose of an asset protection trust is to keep the trust funds safe and secure for the benefit of the beneficiaries instead of having the funds be an available resource to pay a beneficiary’s debts. 

Asset Protection Trusts Equal Inheritance Protection:

Leaving an inheritance outright to your child or grandchild without any strings attached is risky in this day and age of high divorce rates, lawsuits, and bankruptcies.  Aside from this, your beneficiaries may not have developed the financial skills necessary to manage their inheritance over the long run.  There is also the very real risk that an outright inheritance left to your spouse will end up in the hands of a new spouse instead of in the hands of your children or grandchildren.  Finally, a beneficiary may be born with a disability or develop one later in life that will end up rapidly depleting their inheritance to pay for medical and other bills.

There are a number of different types of asset protection trusts that you can establish to insure your hard earned money is used only for the benefit of your family:


  1. Trusts for minor beneficiaries – Minor beneficiaries cannot legally accept an inheritance, so a discretionary trust for a minor is a necessity.

  2. Trusts for adult beneficiaries – Adult beneficiaries who are not good with managing money, are in a lawsuit-prone profession, have an overreaching spouse, or have an addiction problem will benefit from a lifetime discretionary trust. 

  3. Trusts for surviving spouses – If you are worried that your spouse will not be able to manage their inheritance, will remarry, or will need nursing home care, you can require your spouse’s inheritance to be held in a lifetime discretionary trust.

  4. Trusts for disabled beneficiaries – Disabled beneficiaries who receive an inheritance outright run the risk of losing government benefits and will need to spend down the funds to requalify, but an inheritance left to a special needs trust can be used to supplement, not replace, government assistance.


Drafting an Asset Protection Trust Your Way:

Asset protection trusts designed for inheritance protection can be as rigid or as flexible as you choose.  For example, a beneficiary can be added as a co-trustee at a certain age or after the beneficiary reaches a specific goal such as graduating from college.  Another option is to name a corporate trustee, such a bank or trust company, but give the beneficiary the right to remove and replace the corporate trustee with another one. 

You can also make trust distributions as limited or as broad as you choose.  For example, you can state that the funds can only be used to pay medical bills or for education, or the Trustee can be given broad discretion to make distributions in the best interests of the beneficiary.  You may also want to require the Trustee to take into consideration the beneficiary’s income and other assets before making distributions.  Alternatively, the Trustee can be given the authority to deplete the trust for one of the beneficiaries to the detriment of the remainder beneficiaries.  If there are multiple beneficiaries, such as a trust for the benefit of your spouse and your children, the Trustee can be directed to give preferential treatment to one or more beneficiaries over the others.

The Bottom Line on Asset Protection Trusts:

Asset protection trusts offer a great deal of planning opportunities for people of even modest means.  We are available to answer your questions about asset protection trusts and help you integrate this type of planning into your estate plan.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller. 

The Trust Protection Myth: Your Revocable Trust Protects Against Lawsuits

WARNING:  Many people believe once they set up a Revocable Living Trust and transfer assets into the Trust, those assets are protected from lawsuits.  This is absolutely not true

While Trusts commonly provide asset protection for beneficiaries, few Trusts protect assets owned by the person who created the Trust.

No Immediate Asset Protection?  Why Should You Create a Revocable Living Trust?

Fully funded Revocable Trusts are dynamite tools.  Here’s why: 

What Can You Do to Protect Your Assets?

Comprehensive estate planning has a solid foundation of insurance, including homeowners/renters, umbrella, auto, business, life insurances, disability, and the like.  Business entities such as the Limited Liability Company are commonly used for asset protection and   Domestic Asset Protection Trusts are sometimes used as well.

Your Revocable Living Trust creates a powerful value and can be drafted to provide asset protection for your loved ones.  To protect yourself, use insurance, business entities, and, perhaps, a Domestic Asset Protection Trust.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Discretionary Trusts – How to Protect Your Beneficiaries From Bad Decisions and Outside Influences

Leaving your hard-earned assets outright to your children, grandchildren or other beneficiaries after you die will make their inheritance easy prey for creditors, predators, and divorcing spouses.  Instead, consider using discretionary trusts for the benefit of each of your beneficiaries.

What is a Discretionary Trust?

A discretionary trust is a type of irrevocable trust that is set up to protect the assets funded into the trust for the benefit of the trust’s beneficiary.  This can mean protection from the beneficiary’s poor money-management skills, extravagant spending habits, personal or professional judgment creditors, or divorcing spouse.

Under the terms of a typical discretionary trust, the trustee is limited in how much can be distributed to the beneficiary and when the distributions can be made.  You can make the terms and time frames as limited or as broad as you want.  For example, you can provide that distributions of income can only be made for health care needs after the beneficiary reaches the age of 21, or you can provide that distributions of income and principal can be made for health care needs and educational expenses at any age. 

An added bonus of incorporating discretionary trusts into your estate plan is that the trusts can be designed to minimize estate taxes as the trust assets pass down from your children to your grandchildren (this is referred to as “generation-skipping planning”).  In addition, you can dictate who will inherit what is left in each beneficiary’s trust when the beneficiary dies, which will allow you to keep the trust assets in the family.

While the distribution choices that can be included in a discretionary trust are virtually endless (within certain parameters established under bankruptcy and creditor protection laws), the bottom line is that a properly drafted discretionary trust will protect a beneficiary’s inheritance from creditors, predators, and divorcing spouses, avoid estate taxes when the beneficiary dies, and ultimately pass to the beneficiaries of your choice. 

Where Should You Include Discretionary Trusts in Your Estate Plan?

Discretionary trusts should be included in all of the trusts you have created that will ultimately be distributed to your heirs, including:

  • Your Revocable Living Trust

  • Your Irrevocable Life Insurance Trust

  • Your Standalone Retirement Trust

What Should You Do?

If you are concerned that your children, grandchildren, or other beneficiaries will not have the skills required to manage and invest their inheritance or will lose their inheritance in a lawsuit or divorce, then talk to your estate planning attorney about how to incorporate discretionary trusts into your estate plan.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Estate Planning in 2014 and Beyond under the New Tax Law

The recent tax legislation dealing with the “fiscal cliff”, which went into effect on January 1, 2013, included significant revisions to the estate tax law that will affect estate planning for the foreseeable future. While you may have previously read about these changes, the following serves as a summary of the exemption amounts for decedents passing away in 2014. These revisions include:

The federal gift, estate and generation-skipping transfer tax provisions were made permanent as of December 31, 2012. This is great news because, for more than ten years, we have been planning with uncertainty under legislation that contained expiration dates. Moreover, while “permanent” in Washington only means that this is the law until Congress decides to change it, at least we now have some certainty with which to plan.

Estate & Gift Tax Exemption:

The federal gift and estate tax exemption will remain at $5 million per person, adjusted annually for inflation. In 2012, the exemption (with the adjustment) was $5,120,000. The amount for decedent’s passing away in 2013 is $5,250,000. For those passing away in 2014, the exemption amount is $5,340,000. From a practical perspective, this means that individuals can make gifts during life or transfers at death up to this higher exclusion amount, and pay no federal estate tax. In addition, for married spouses, a surviving spouse can combine the deceased spouses unused credit amounts, and pass assets free of estate  tax on an estate up to $10.68 million at the death of the second spouse. This is true assuming that none  these credits or tax coupons were not used during either spouses lifetime. However, to utilize a deceased  spouses credit amount, a comprehensive estate plan must be in place to ensure these tax coupons are  preserved. Accordingly, it is crucial to have a properly drafted comprehensive estate plan in place so that you  do not pay more estate tax upon your passing.

Generation-Skipping Transfer Tax ("GST") Exemption:

The generation-skipping transfer (GST) tax exemption also remains at the same level as the gift and  estate tax exemption ($5 million, adjusted for inflation). This tax, which is in addition to the federal estate  tax, is imposed on amounts that are transferred (by gift or at death) to grandchildren and others who are  more than 37.5 years younger than you; in other words, transfers that “skip” a generation. Having this  exemption now be “permanent” allows for planning that will greatly benefit future generations. Accordingly,  for individuals with a properly drafted estate plan that includes GST planning, $5.34 million can be  transferred free from the GST tax. For married couples with estate plans where GST planning is utilized,  $10.68 million can be sheltered from the GST tax.

Annual Gifting Program:

Married couples can take advantage of these higher exemptions and, with proper planning, transfer up to $10.68 million through lifetime gifting and at death. Thus, implementing a well planned lifetime gifting programs offer a simple estate planning technique that can result in significant tax savings.

Prevailing Tax Rates:

The tax rate on estates larger than the exempt amounts increased from 35% to 40%.


The “portability” provision was also made permanent. This allows the unused exemption of the first  spouse to die to transfer to the surviving spouse, without having to set up trust planning specifically for this purpose. However, there are still many benefits to using trusts, especially for those who want to ensure that their estate tax exemption will be fully utilized by the surviving spouse.

Annual Gift Tax Exclusion Amount:

Separate from the new tax law, the amount for annual tax-free gifts increased in 2013 to $14,000. This amount can be gifted annually, free from gift tax, to a single person or child each year. Moreover, parents can utilize an estate planning technique known as “gift splitting”, which allows parents to combine annual gifts that are free from gift taxes. Accordingly, with a properly drafted estate plan, a married couple can gift $28,000 to each child each year free from gift tax inclusion.

Annual Exclusion For Gifts To Non-U.S. Spouse:

For gifts made to a non-U.S. citizen spouse, the exclusion amount for annual gifts was $143,000 in  2014. In 2014, the annual exclusion amount for gifts made to a non-U.S. citizen spouse was increased to  $145,000.

Foreign Earned Income Exclusion:

The foreign earned income exclusion amount was increased from $97,600 in 2013, to $99,200 in 2014.

Therefore, for most Americans the 2012 Tax Act has removed the emphasis on estate tax planning and put it back on the real reasons to do estate planning: taking care of ourselves and our families the way we want. Those who might be tempted to skip estate planning because their estates are less than the $5 million range should remember that proper estate planning provides peace of mind by allowing Americans to:


1. Avoid state inheritance/death taxes that have lower exemptions than federal taxes;

2. Avoid probate, which can be quite expensive and time-consuming in some states;

3. Ensure their assets are distributed the way they want;

4. Protect an inheritance from irresponsible spending, “creditor’s and predator’s” which includes a child’s creditors, and from being part of a child’s divorce proceedings;

5. Provide for a loved one with special needs without losing valuable government benefits;

6. See that control of their assets remains in the hands of a trusted person;

7. Provide for minor children or grandchildren;

8. Help protect assets from creditors and frivolous lawsuits (especially important for professionals);

9. Protect themselves, their family and their assets in the event of incapacity; and

10. Help create meaningful charitable gifts.

For those with larger estates, ample opportunities remain to transfer large amounts tax-free to future generations. Nevertheless, with the increase in estate and income tax rates, it is critical that professional planning begins as soon as possible. In addition, with Congress looking for more ways to increase revenue, many reliable estate planning strategies may soon be restricted or eliminated. Thus, it is best to put these strategies into place now so that they are more likely to be grandfathered from future law changes.

For those who have been sitting on the sidelines, waiting to see what Congress would do, the wait is over. Now that we have some certainty with “permanent” laws, there is no excuse to postpone planning any longer. Finally, if you are taking the time to read this article, getting your affairs in order by executing a properly drafted estate plan is on your mind. Therefore, instead of making excuses as to why you are not creating your estate plan (i.e. not enough time, etc.) contact a competent estate planning attorney and unburden yourself from this concern—create a comprehensive estate plan—and obtain the piece of mind that you and your family will be taken care of even after you are no longer around. 

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.