Does Comprehensive Estate Planning Really Work?

Dear Clients, Colleagues, and Friends,

There have been more court decisions involving failed asset protection planning in the last two years than I can ever recall in over two decades of this focus of my practice area.

What is behind this recent and unusual rash of cases?

To be sure, “bad facts make bad law,” and when comprehensive estate planning (with asset and lifestyle protection) is properly implemented, these types of disputed cases usually settle, because the cost to break the structure without certainty of recovery discourages most claims. Nevertheless, we continually get asked, “Does asset protection actually work?” The answer I offer depends upon your definition of “work”.

In my law firm, the planning will have worked, not when a judge or jury proclaim: “The asset protection structure used by the defendant worked and the plaintiff may not recover,” but when due to doubt as to collectability, the parties recognize that sitting down in a conference room to hammer out a quick and relatively inexpensive settlement makes the most sense for both sides.

Removing the “Profit from the Pursuit”

I am an ardent proponent of incorporating sensible asset and lifestyle protection into the estate planning process.

In the event of a financially ruinous lawsuit or other third-party legal claim, these “firewalls” become significant in removing the “profit from the pursuit” to coin an expression favored by my asset protection colleagues.

Litigation is an expensive and unpleasant experience for both the plaintiff and the defendant, so discouraging the litigation by demonstrating “doubt as to collectability” by the plaintiff frequently generally leads to an early and very modest settlement.

Cautionary Tale of an Unprotected Estate

Let me share with you the story of a client with a nice size estate who didn’t include these firewalls when his estate planner drafted his estate planning documents.

About a year ago, a retired businessman in his mid-80s was referred to us for a consultation on a very serious lawsuit that had been filed against him. The gentleman businessman bought and sold hundreds of companies over his 40+ year business career.  In the 1980s, one of the companies he briefly owned was in the manufacturing business and leased the plant and land from a group of successful real estate investors. Years after our client sold the business, the local EPA discovered hazardous materials had been deposited on the factory’s site, but it is impossible to tell on “whose watch” the contamination may have occurred.

The land owners paid to clean up the contamination and then sued some of the previous owners of the business, including our client for reimbursement of the costs to remove the contamination, a multi-million dollar damage claim. At the time the lawsuit was filed, our client had not owned the business for over 15 years and was retired and living in another state. Unaware the lawsuit was filed, he never answered the lawsuit and a multi-million dollar default judgment was recorded against him.

From Too Late to Newly Protected

By the time our client discovered the default judgment has been entered, he was an 80-something retiree no longer active in business. The amount of the judgment was sufficiently large enough to bankrupt him. Our client was at risk of losing all of his financial resources, including his residence.  In response, he met with several asset protection experts to consider his options. He was told it was too late to do anything to fix his predicament.

One of those advisors suggested he meet with us. When the Jeffrey M. Verdon Law Group, LLP reviewed the man’s case, our team believed there would be a legal basis to overturn the default judgment due to a legal technicality, allowing our client to have his “day in court”. We selected an exceptional litigator from among our “A” list of lawyers to attack the judgment and formulated a comprehensive estate plan for our new client.

The litigator was successful in setting aside the default judgment, requiring the plaintiff to re-file the lawsuit so our client would have the ability to defend itself in the underlying legal action. In the meantime, our asset protection “dream team” set out to implement a comprehensive estate plan with effective “firewalls” creating the requisite “doubt as to collectability.”  Our client was then in position and prepared to vigorously defend the lawsuit that was going to be re-filed.

If the plaintiff re-filed the lawsuit, our client was ready to raise all the affirmative defenses, and also bring certain counterclaims against the plaintiffs, for which they could be held liable, offsetting any potential damage award. The litigation would be expensive and take years to resolve. In the meantime, our client would likely consume most of his assets in ordinary living expenses. Thus, with the comprehensive estate planning and their “firewalls” in place, and by asserting the counterclaims against the plaintiff, our tenacious litigator was able to convince the plaintiff’s legal counsel that settlement was a much preferable course.

When Asset Protection Planning Works

I am happy to report that our strategy coupled with the comprehensive estate planning design was very successful in convincing the plaintiffs they would be far better off settling than incurring all of the associated costs without the likelihood of recovery even if they prevailed. Our approach convinced the opposing side of the merits of taking “one bird in the hand” as opposed to hoping for “two in the bush” later.

Here’s why asset protection planning worked in this case. By attacking the merits of the lawsuit, coupled with the protection of the “firewalls” associated with the comprehensive estate planning we implemented for the client, the litigator could raise significant “doubt as to collectability,” reducing the potential windfall and motivating the plaintiffs to settle. The final settlement amount allows our client to retain most of his resources and live out the balance of his life without the stress and uncertain outcome of a lawsuit.

Everyone won in this case (except the trial lawyers). Although our client had to write a modest check to settle the lawsuit, he was only too glad to do it and get his life back along with the peace of mind of knowing he wasn’t going to have to file bankruptcy.

The law firm wishes to acknowledge the exceptional work performed by Neely & Callaghan; Benesch, Friedlander, Coplan & Aronoff LLP; Engel & Reiman, PC; and Succession Capital Alliance, Inc. for their contributions in the outcome reached in this case.

What are the lessons to take away? Make sure when you do your estate planning, include effective “firewalls” in case you are sued for some unforeseeable past or future acts. If you are not sure if you are adequately protected today, or for an eventuality decades down the line, contact us for our Lawsuit Exposure Test or allow us to perform a complimentary lawsuit exposure evaluation for you. Let us see if we can help protect your hard-earned assets and lifestyle from  financially ruinous lawsuits before it is too late.

Posted in Client Alert, Estate Planning.