Asset protection planning is an important specialty that is in high demand by the wealthy. It is the process of using legal strategies and financial products to ensure a person’s wealth is not lost due to frivolous or unjust lawsuits.
This can be viewed as pre-litigation planning, with the aim to defensibly structure assets, partly through the use of certain financial products to dissuade others from suing unjustifiably. These plans are often designed to motivate people not to sue or to settle on very favorable terms for the client.
While some high-end wealth management practices have the expertise to carry out this type of planning in-house, advisors tend to depend on third-party asset protection specialists.
But our research has shown that many of the asset protection specialists that wealth managers are outsourcing are simply not up to the job. This lack of expertise more pronounced when it comes to serving very wealthy families.
Many Pretenders
A great many self-proclaimed asset protection specialists are really pretenders. While they might desire to do a good job for the wealthy, their knowledge is limited and many times inaccurate.
In a survey of 227 self-identified asset protection attorneys, few of them were knowledgeable about a large percentage of verified asset protection strategies. Only about a sixth said they were leading authorities on the subject. Furthermore, about three-quarters admitted they need to become more informed with respect to asset protection strategies. Still, all these attorneys hold themselves out as asset protection specialists.
Many of these asset protection attorneys were not knowledgeable of some of the more common strategies in the field. They were generally knowledgeable concerning the more basic asset protection strategies, such as corporate structures, the use of partnerships and qualified retirement plans. However, most were not knowledgeable about more esoteric asset protection strategies, such as domestic and offshore self-settled trusts, certain life insurance strategies and equity stripping. And they had no understanding of sophisticated asset protection strategies, such as the “floating island strategy” and the use of cross-border arbitrage to protect wealth.
Wealth managers need to do their due diligence and consider numerous factors in order to effectively evaluate the technical competence of an asset protection specialist. They need to look at a candidate's educational background, professional experience and licenses, and the associations they have with professional and industry organizations. Also research whether the candidate is recognized as an expert by peers in the financial and legal communities, including whether he or she has published or done public speaking on asset protection.
There are quality asset protection specialists available to wealth managers. They are at the cutting-edge of their field, contributing to its advancement. Moreover, they are very willing to share their expertise and insights with their peers. In effect, they are thought leaders.