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It's all of the above
Professional advisors to high-net-worth individuals have responded to our society's perceived litigiousness by developing a subset of estate-planning services known as asset-protection planning-that is, planning designed to place assets beyond the reach of potential creditors.' But some professionals, particularly lawyers, question whether they should be assisting clients in such an endeavor. Specifically, they question whether asset-protection planning is ethical or even legal. (See, "Shelter From the Storm," page 38.)
These are compelling issues for today's estate planning practitioner. Yet many aspects of even a traditional estate plan may be characterized as asset-protection planning. Consider, for example, limited partnerships or limited liability companies created not only for valuation discounts but also to insulate assets from potential liabilities arising from ownership of real estate. Similarly, a trust by its very nature can offer protection from a beneficiary's creditors, though it might have been established for other purposes.
Still, a line does need to be drawn. On the one side is legal and ethical asset-protection planning that serves merely to protect against the possibility of creditors in the future. On the other side is planning that serves to defraud existing or probable future creditors. The most important question, then, it: Where to draw this line?
IN GENERAL
No attorney ethics rule directly discusses asset-protection planning. Instead, ethics opinions issued by some state bar and local bar associations on asset-protection planning have looked to the prohibition against attorneys advising or otherwise assisting clients in transfers that may later be found to have been a fraudulent conveyance. Of course, non-lawyer estate-planning professionals are not bound by attorney ethics rules. But they would be wise to heed them, because such rules provide a likely gauge for their own professional ethics standards,
Ten states follow the American Bar Association's Model Code of Professional Conduct (promulgated in 198o), which warns that a lawyer shall not "engage in conduct involving dishonesty, fraud, deceit, or misrepresentation".2 A corollary in the model code, DR 7-102, "Representing a Client Within the Bounds of the Law," says a lawyer should not "counsel or assist his client in conduct that the lawyer knows to be illegal or fraudulent. Although the model code does not define what is meant by the terms "illegal"...