Illinois Asset Protection - Chicago Business Law - Illinois corporate Attorneys - protecting assets


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Asset Protection

This refers to preventing creditors from getting your assets. There are no magic techniques. A variety of techniques are used which may include:

1. Transferring your assets to your spouse - or someone else who is cooperative. There is an unlimited gift tax exemption for transfers to a spouse.

2. Tenancy by the Entireties. This is a type of joint tenancy between married people for their residence. The creditors of one spouse cannot levy on the residence as they can when it is owned in an ordinary joint tenancy.

3. Putting your assets into a form exempt from execution by judgment creditors. A good example is a retirement plan or IRA (in Illinois.) Another exempt asset is life insurance payable to a spouse or dependant, including the cash value. (Creditors can levy on distributions from these plans or insurance).

4. Putting your assets in limited partnerships or LLC's created under the laws of a few states where the creditors can get only a charging order (a right to get distributions from the entity) rather than an order to sell the ownership interest. You can get the money out in salary - not distributions on the ownership interest.

5. Trusts in general. An irrevocable trust (for someone else's benefit) puts assets in it (but not distributions) beyond the claim of your creditors. A revocable trust that provides how its assets are distributed after your death protects the assets from your (not the beneficiary's) creditor's claims after your death - but not before.

6. Spendthrift trusts. These are trusts that do not allow a creditor of a beneficiary to attach the beneficiary's interests. They are valid, but only if the beneficiary is someone other than the creator of the trust.

7. Domestic irrevocable asset protection trusts are now permissible in several states. In effect they are spendthrift trusts for the benefit of the creator of the trust. They basically provide that a creditor of the grantor cannot get the trust assets. Illinois has no such law. To have the law of one of these other states apply to a trust set up by an Illinois resident that state must have a substantial relationship to the trust such as a trustee being in that state and/or location of the assets there. Since domestic asset protection trusts are new, certain questions, such as what state's laws will apply, are not yet settled.

8. Foreign asset protection trusts. Some countries don't grant "full faith and credit" to a foreign judgment. A creditor having a U.S. judgment cannot enforce it in those countries. The creditor must institute a new law suit there. This alone discourages creditors. If a creditor does sue the trust assets can be distributed to another trust in another country with similar laws before the creditor gets judgment.

9. Limited liability entities. These are corporations, limited liability companies, limited partnerships and limited liability partnerships. If these are set up and operated properly creditors of the business can only get the business assets. They cannot go outside the business and collect from assets of the owners. Note that creditors of the owners can get the owner's interests in the corporation or partnership and to some degree, the limited partnership and limited liability company.

10. Keeping ownership of assets used by a business outside the business. The creditors of a business can get its assets. They cannot get assets it leases. For this reason owners of assets like real estate used by businesses they own often do not put the real estate in the entity owning the business. They lease it to the entity. This goes for any valuable asset and often includes equipment or other things used by the business. If the asset is of a type which can generate claims, then the asset can be owned by another limited liability entity.

11. Separating risks. If two businesses are conducted or a single business is conducted in separate locations each can be owned by a separate limited liability entity. That way if one goes under the assets of the other will not be exposed.

Some of these devices can be attached by creditors under fraudulent transfer laws. If a transfer is not for equivalent value and is intended to defeat known and existing claims and the transferor does not retain sufficient assets there is a fraudulent transfer which a creditor can get a court to revoke.


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Donald M. Thompson * Chicago Business Lawyers - 55 W. Monroe #3950; Chicago, IL 60603
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