When working with High Net Worth (HNW) families in the estate planning process, the subject of asset protection often arises. While it is not the focus, it is often a secondary benefit of the planning we are undertaking. However, truthfully, most of the time, it has not been considered important and, in fact, has not been considered at all. With the currently fragile economic environment and the global health crisis, it is time to help our HNW families to proactively focus on asset protection.
Many HNW families have created their wealth through ownership of closely held businesses or through the acquisition of real estate of all kinds. Now as employees return to work and customers return to contact with those businesses, there is an entirely new set of unanticipated risks, even though the owner has done nothing new or different: the possibility of a customer or an employee contracting a disease. That disease may even prove fatal. Lawsuits are certain to become rampant and liability insurance carriers likely have not even anticipated how to factor these risks yet.
While it is possible that Congress will pass some legislation to insulate business owners from some liability from COVID 19 related illnesses, that issue remains unsettled. Further, if legislation does pass it will be limited at best. And it will be untested in court until someone files suit. Advisors should take the lead and discuss the various opportunities and options with all their clients. Understanding which jurisdictions have better asset protection rules than others, which entity structures are best suited for which assets and how to separate risky assets from each other to isolate risks is critical to the success of good planning. It has never been more vital to have this discussion.