Below you will find some of the most frequently asked questions dealing with the Maryland Asset Protection Process. Please contact our office with any additional questions or concerns you may have.

 What is Asset Protection?

Maryland asset protection planning is the method of preparing for the possibility of future litigation by adjusting the ownership of assets so that they are beyond the reach of creditors. It can act as a form of insurance in an overall strategy to protect you from the risks associated with businesses and professions; however, insurance policies have limits and exclusions.

Asset protection planning is used to protect assets that would otherwise be at risk. Asset protection planning can be done to differing degrees. In general, the more complex the planning, the more effective the protection.

Which Assets can I protect?

The simplest form of asset protection planning involves the ownership of "exempt" property that Maryland law considers unreachable by creditors. Each state has its own laws defining exempt and non-exempt property. Certain property may be entirely exempt while the exemption for other property may be limited to a certain dollar amount. Examples of exempt property are:

-           Household furniture

-           Clothing and Jewelry

-           Tools of a trade or business

Social security and other such benefits including life insurance may also be exempt property. Some states exempt all or a portion of one's home and adjoining land. To determine the exemption of one's specific assets location is the primary question.

If property is not exempt from your creditors, you may want to consider a simple form of asset protection planning: an outright transfer of the property to family members. Valuable assets may be transferred to a spouse or relative to insulate them from claims of potential creditors. Intra-family transfers can also often constitute effective estate planning. Transferring the ownership of assets now can protect them from creditors during your lifetime and from the tax authority at death.

Intra-family transfers should not be made before considering all ramifications and risks, such as:

-           Loss of control over the asset and  income  

-           The new owner's exposure to potential creditors

-           Any gift or transfer tax consequences

When should I start asset protection planning?

If you have enough assets to require estate planning to avoid death taxes, then you probably have enough assets to require planning to protect them from lawsuits before death. It is a personal decision based upon your tolerance to risks.

Are my retirement assets protected from creditors?

Federal law provides that creditors cannot reach the assets held by so-called qualified retirement plans. This includes pension, profit sharing, and 401(k) plans. Self-employed plans and Individual Retirement Accounts may also be protected.

How can I protect my business assets?

If you begin a business without incorporating it, then all of your personal and business assets will be at risk for all debts and claims against the business. This is also the case if two or more people run the business as a general partnership. In order to protect your personal assets from the risks of the business, an asset protection form of ownership needs to be utilized. The choices available in Maryland include:

-           Corporation

-           Limited Partnership

-           Limited Liability Company

What are fraudulent transfers?

Asset protection planning is considered to be legal if it takes place before any event has occurred that could result in a claim against you. If you have already committed an act that could result in a claim or if you have been sued, then it is too late. Any asset transfers at that time (without adequate consideration) may be considered a fraud upon creditors; in which case, the law would not respect the transfers.

What are FLPs and Asset Protection Trusts?

The family limited partnership (FLP) has been recommended by many as the leading asset protection device. As the states have permitted the formation of limited liability companies, they, too, have been viewed as a favorable ownership form for asset protection.

It is much more difficult for creditors to reach business or investment assets that have been transferred to these limited liability entities. A judgment creditor of a limited liability entity cannot attach a partnership's assets or foreclose on a partner's interest in order to satisfy his claim. Instead, a creditor is only entitled to a charging order, which may limit their claim to partnership distributions.

Asset protection trusts are another asset protection planning tool. There are a number of tax haven countries that are also used to form off-shore trusts.  These countries have laws that are favorable to the creation of these trusts and can insulate the trust's assets from creditors.