As most of you know, Joe Paterno, the just-fired coach of Penn State, is in the crosshairs of potential plaintiffs for his alleged misconduct relating to Jerry Sandusky (if any of you are not up to date on this story, just Google those two names). The New York Times just published a story that Paterno, on July 21, transferred his interest in his home to his wife, as trustee for a trust, for $1 plus "love and affection".
Yesterday, Forbes published an article entitled "Paterno House Transfer Won't Shelter Him" that does a very good job presenting the asset protection issues triggered by the Paterno transfer. Pay attention closely as you read some of the highlights:
[R]eaders need to know: if, as a result of the scandal, Paterno is sued and found to be personally liable, the July transfer would probably not stop the house from being used to satisfy a judgment against him....Whether, or how, a court ultimately decides whether a creditor can get to Paterno's home is irrelevant. What is relevant to each and every one of you is this crucial notion that, because of the fraudulent transfer laws, you must implement your asset protection plan "before there is even a hint of trouble on the horizon." And, you can kill two birds with one stone by combining that wealth protection project with your estate plan. To get more information as to how asset protection and estate planning overlap click here to read Certified Estate Planning Attorney Michelle Lerman's article "Ten Things You Must Know To Protect Your Family".
The reason stems from state and federal laws that prohibit what are called fraudulent conveyances: transfers of assets made with the intent to hinder, delay or defraud creditors (those are legal buzz words in italics). Creditors include everyone from disgruntled spouses and ex-spouses to people who win lawsuits against you. If a court finds there has been a fraudulent conveyance, it can declare the transfer void and order the assets be made available to creditors...
...[A]s a rule of thumb, you must transfer the property before there is even a hint of trouble on the horizon....[Note from JHL: Read that last sentence three times. It is the most important sentence in any asset protection article you will ever read]
There’s a lesson there, but it has nothing to do with the latest sex scandal. The take-away is that preserving resources for yourself or future generations goes beyond sound investment and money management. You also need to guard against losing assets to creditors...
Keep in mind that in tough economic times, people find reasons to sue. It’s prudent to ensure you are not an easy target.
An ideal time to address the issue of asset protection is in the course of creating or revising an estate plan. It is possible that some of your assets are already beyond the reach of creditors, and others could be, with minor adjustments....(emphasis added).
If you would like to discuss how best to protect your assets or any estate planning question, please e-mail me at firstname.lastname@example.org. If you would like more information about fraudulent transfers, please click here to see information about an excellent home study course on that topic offered by Investor Education Institute Series.