Other than the obvious benefit of keeping your assets safe rather that losing them to a creditor (meaning one to whom money is owed) or predator (meaning one who may take advantage of you because you have financial means), having a protective structure in place in advance of a claim, and sharing that fact with a future opponent, can go a long way toward leveling the playing field between a potential plaintiff/defendant situation. As such, this planning ultimately allows for a final outcome in litigation to be much more favorable for you or your company as a defendant. That however is not the only possible advantage. Below, we address added benefits of, and reasons for, such a plan.
Deterrent Effect. Not only does protection planning (such as with an asset protection trust) allow for a better result in litigation, a protective structure also greatly increases the likelihood that the threatened case will be settled, or altogether avoided, by agreeing to a mutually agreeable resolution (for example, 10 cents on the dollar) without incurring the prohibitive legal costs and time that would have otherwise occurred had you been forced to fully litigate the matter. Avoiding just one lawsuit saves you legal fees that far outweigh the cost of setting up the protective plan in advance, many times over.
Creating in advance a sound protection plan places you in a very strong bargaining position with most claimants and gives you numerous options that you would not otherwise have. Discouraging the lawsuit also reaps a high reward. Many clients feel they have already “lost” by being named a defendant in a lawsuit that may have otherwise been avoidable. Even winning the lawsuit will cost you in legal fees, time, emotional stress, and possibly reputational damage.
Lawsuits are driven by economics, and by seeing the time, effort, and cost of overcoming your asset protection plan, the plaintiff may prefer to go after any other “joint” defendants from whom the pursuer can collect more cost-efficiently.
Avoiding the lawsuit altogether can also avoid the bad press that can occur in some cases of public interest.
Peace of Mind. Having assets protected brings a certain peace, calmness and lack of apprehension in moving forward with life and taking the calculated risks that are necessary to get ahead. Being able to concentrate on what you do best without fear of losing all you own and having to start all over again financially, provides a certain confidence conducive to financial success.
Failure to Plan. Of course, failing to plan is planning to fail. At a minimum, experience has proven time and again that having a protective plan in place results in a person weathering the storm much better than he or she would have in the absence of planning. Being able to land more softly because you kept your options open is a winning scenario. Asset protection planning “works” because you walk away with much more when compared to the alternative of leaving your assets positioned in a vulnerable manner there for “the taking.” Coming out moderately better is an accomplishment, and in the author’s experience, clients come out much better than just “moderately better.”
Creative Plaintiffs. Lawsuits have become the vehicles of ever-expanding theories for finding a person liable in hindsight. Even in cases where a defendant did nothing wrong, an attorney can make an emotional appeal to a sympathetic jury who does not feel sorry for the well-heeled defendant, resulting in a severe financial verdict against the defendant.
Fault can be found in legal actions if a jury can be convinced that you could have anticipated the damage for which you are now being held accountable. Hindsight is always 20/20 and can taint how others view “what you should have anticipated” or “what you should have done differently if you had only thought twice.”
In creative lawsuits, recall the hot coffee liability case against McDonalds; the lung cancer cases against the tobacco companies given all the health warnings; the physician who is sued because his patient injured someone partly because the patient was experiencing a side-effect of a prescription drug; a surgeon who successfully operated on a patient after the patient was in a horrific accident, and the surgeon was able to regain 95 percent of the patient’s physical abilities, but still got sued because the patient was expecting to be made 100 percent whole; the attorney who is sued by her client because the award the attorney obtained for her client in the legal matter was less than what the client expected; etc. What is next? Cases against Batman Halloween costume companies because the consumer thought the cape should have allowed him to fly? Better check those warning labels (A warning label stating that the cape does not enable one to fly has in fact appeared on costume packages, and likely for good reason!).
Judges and juries are human and can be swayed to bend the interpretation of laws in finding fault and looking at things through a result-oriented lens. Juries are known to gain satisfaction through the redistribution of wealth when given the power to do so.