R. Glen Woods
1349 Galleria Drive
Henderson, Nevada 89014
702.433.9696  fax: 702.434-0615  E-Mail: rgwoods@wewmlaw.com
 2001 R. Glen Woods
TAX AND ESTATE PLANNING
Reasons for Asset Protection Planning
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Unpredictable legal system
Result-oriented judges and juries
Expanding legal theories of liability
Explosion of litigation
Excessive jury awards
Cost and availability of insurance
Exclusions from insurance coverage
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Candidates for Asset Protection
Planning:
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Professionals
Officers and directors
Investors
Real estate owners exposed to environmental and
landlord-tenant claims
Business owners
Individuals exposed to potential lawsuits
(harassment, wrongful termination, libel and
slander, etc.)
Alternative to prenuptial agreements
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Goals of Asset Protection Planning
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Deter litigation
Incentives for settlement
Simplicity
Avoid loss of control
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Asset Protection – Part of an
Integrated Estate and Business Plan
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Access to property until death
Retain rights to income
Retain management control
Protection from creditors
Save income taxes
Reduce estate taxes
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Effective Asset Protection Planning
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Complements existing liability insurance
(homeowners liability, business liability,
malpractice and umbrella insurance)
Is undertaken before problems arise
Is comprehensive throughout one’s financial
affairs and estate planning
Provides options and alternatives when
problems arise
Does not involve excessive complexity
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Effective Asset Protection Planning
is not
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a tax avoidance scheme;
based upon secrecy or hiding assets;
a means of defrauding creditors; or
a substitute for liability insurance
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Legal Considerations/Fraudulent
Conveyance Statutes
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Based upon the Statue of Elizabeth (1573)
A transfer that is made with the actual intent to hinder, delay or defraud
creditors is a fraudulent transfer.
Note: The debtor’s intent is the key.
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Also, a transfer that is made without adequate consideration is deemed to
be fraudulent if:
(1) The debtor was left with unreasonably small capital for the debtor’s
business; or
(2) The debtor intended to incur, or believed he would incur, more debts
that the debtor would be able to pay; or
(3) The debtor was insolvent at the time of the transfer or as a result of
the transfer.
Note: Lack of adequate consideration is the key.
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 2001 R. Glen Woods
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Types of Creditors
Present Creditor: Contract has been signed or cause of action has
accrued.
Note: Present creditors are protected by the uniform fraudulent
transfers act.
Subsequent Creditors: Narrow group of creditors who can
establish a harm caused by the transfer.
Note: Requires actual fraudulent intent.
Future Potential Creditors: Unidentifiable persons who may
happen to become creditors of the transferor in the future.
Note: Asset protection is most effective against this type of creditor.
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A Well-Designed Asset Protection Plan
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Is part of the overall estate plan
Is undertaken after a cost-benefit analysis
Maintains flexibility
Does not result in loss of control
Maintains rights to income
Provides protection from unjust obligations
Combines effective asset protection strategies
where appropriate
Avoids unnecessary complexity
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Types of Asset Protection Plans:
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Outright gifts
Use of exemptions
Liability insurance
Limited partnership
Nevada asset protection trust
Offshore asset protection trust
Expatriation of assets
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Outright Gifts
Example:
Doctor gives all of his assets to his wife and children to protect assets
from potential future lawsuits.
 Frequently inconsistent with personal and retirement goals
 Results in loss of control of assets
 Can easily backfire:
– Divorce (of either the transferor or the transferee)
– Change in nature of relationship (hostile transferee)
– Transferee’s financial difficulty
– Death of transferee: “People have a way of dying in the
wrong order.”
 Often has unintended consequences:
– estate and gift tax considerations
– legal problems of transferee
 May not work in any event (consider community property laws)
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Use of Exemptions
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Federal ERISA protection
Note: Does not protect benefits in pay status
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State retirement exemptions (Nevada exempts $500,000 total IRA
balances)
Homestead exemption ($125,000 in Nevada)
Note: Homestead exemption does not prevent loss of home if equity exceeds $125,000.
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Life insurance (exemption limited to the coverage that is purchased with
$1,000 premium)
Other state exemptions (limited exemptions exist for books, tools of
trade, vehicles, personal and household possessions)
Can play a role where advance planning is inadequate
Protection is limited, particularly for those with large estates
Exemptions change as transferor’s residence changes
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Insurance and Asset Protection Planning
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General Business Insurance
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Malpractice Insurance
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Coverage is usually limited
Often excludes gross negligence, grossly negligent acts of subordinates, punitive damages,
products liability, and acts of personal not specifically named on the policy
Gross negligence differs from ordinary negligence in manner or degress
Personal Liability Policies
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Often excludes acts outside employment, intentional acts, punitive damages, environmental
liabilities, employment and discrimination claims, officer and director liability
Can also exclude service or voluntary boards of charitable organizations and homeowners
associations
Usually excludes contract claims
Usually excludes liability arising out of business, trade or profession and intentional acts
May contain other exclusions, such as gross negligence, punitive damages, environmental
liabilities, libel and slander
Possibility of Coverage Disputes with Insurance Carrier
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A Well-Designed Asset Protection Plan
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Is part of the overall estate plan
Is undertaken after a cost-benefit analysis
Maintains flexibility
Does not result in loss of control
Maintains rights to income
Provides protection from unjust obligations
Combines effective asset protection strategies
where appropriate
Avoids unnecessary complexity
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Limited Partnerships:
(1) Transferor transfers investment assets to a limited partnership organized under Nevada law.
(2) Transfer receives in exchange a partnership interest in the limited partnership.
(3) Transferor and/or spouse can be the general partner(s); transferor and/or spouse (or others)
can also be the limited partner(s).
LIMITED
PARTNERSHIP
Husband
Wife
(4) As general partners, Husband and Wife are responsible for managing partnership assets and
directing all partnership activities.
(5) Limited partners have no management rights or authority.
(6) General Partners make all decisions regarding partnership distributions.
(7) The name of the partnership should not be readily identifiable with Husband and Wife.
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Limited Partner Waits for Distribution
from the General Partner:
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Considerations:
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Charging Order Protection
Phantom income to judgment creditor
Nature of assets held by partnership -- only “safe” assets
should be transferred to the limited partnership.
Note: Assets that present liability risks can be owned by single-member LLCs.
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Liability of general partners
Control by general partners
Distributions from partnership
Not suitable for some assets:
- S corporation stock
- Annuities
- Personal residence
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A Limited Partnership Drafted for
Asset Protection Purposes
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Concentrates control in the general partner(s)
Provides for general partner(s) to remain in office
notwithstanding the existence of judgment,
garnishments, etc.
Provides for discretion in the general partner(s) to
accumulate partnership assets, rather than make
distributions, if the general partners so determine
Requires the consent of all general partners to
dissolve or liquidate the partnership
Makes use of Nevada’s favorable partnership
legislation
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Nevada Asset Protection Trust
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Trust must be irrevocable.
Trust must be discretionary as to the grantor’s interest.
The transfer to the trust must not be a fraudulent transfer.
Statute of limitations: A creditor in existence at the time the transfer is
made must bring action within the later of:
1. two years after the transfer, or
2. six months after the creditor discovers or should have
reasonably discovered the transfer
A creditor whose claim arose after the transfer must bring action within
two years after the transfer to the trust is made.
Trustee must be a Nevada resident or a bank or trust company that
maintains an office in Nevada to transact business.
Grantor may retain the right to veto distributions from the trust.
Grantor may hold a testamentary special power of appointment.
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A Nevada Asset Protection Trust
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Provides flexibility to the grantor
Is part of the overall estate plan
Can incorporate flight causes
Can provide for a protector
Can be coupled with limited partnership
provisions
Provides for duress
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Considerations:
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Selection of trustee
Office of the protector
Section of assets to be transferred to the trust:
- S corporation stock
- Personal residence
- Other residences
Tax considerations
Choice of law issues
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Offshore Asset Protection Trust
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Certainty regarding nonrecognition of foreign
judgments
Standard of proof required: Beyond a
Reasonable Doubt
Statute of limitations
Burden of proof on creditor
Contingency fee litigation
Selection of trustee
Investment of trust assets
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Nevada Asset Protection Plan:
LLC
LLC
LLC
100%
100%
100%
LIMITED
PARTNERSHIP
1%
General
Partner
Individual
Transferor
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 2001 R. Glen Woods
99%
Limited
Partner
Nevada Asset
Protection Trust
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Advantages of the Nevada Asset
Protection Plan
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Coordinates with overall estate plan
Provides multiple layers of protection
Adaptable as needs and circumstances change
Avoids loss of control for assets held in limited
partnership
Makes use of Nevada’s favorable partnership and trust
laws
Provides protection from unjust obligations
Does not complicate tax reporting; in some cases tax
reporting burden is lessened
Avoids unnecessary complexity
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