First let us reiterate the APS™ “Standard of Care:”
“Rated” advisors shall incorporate asset protection planning into the advice given to all clients.”
Instead of trying to write in paragraph form how an attorney can breach the SOC, we will simply list some examples which will make is self evident.
The standard will vary depending on the “Rating” of the advisor. The better an advisor’s “rating,” the higher standard they shall have to live up to.
Example 1: a simple estate plan.
Mr. Green, age 40, had his estate plan done by a local law firm. Mr. Green disclosed that he is married, has two minor children, has a $75,000 brokerage account, a rental property worth $100,000 owned in his own name, and only $100,000 term life policy on his life. He earns $150,000 a year and has a home worth $400,000 with very little debt in a state where there is no or little homestead protection.
The typical local attorneys will provide the client and spouse with wills, durable powers of attorney, living trusts (or pour over trusts).
Will such advice meet the SOC of the APS™? No.
What advice should have been given in addition to the standard advice?
1) The brokerage account is exposed to lawsuits and needs to be protected.
2) The rental property is exposed to lawsuits and creates liability which exposes the rest of Mr. Green’s estate to creditors. The property should be protected from other creditors and insulated so it doesn’t cause liability to the rest of Mr. Green’s estate.
3) The home’s equity is not protected. The client should be made aware of the various ways to protect the home from creditors (debt shield, IDGT, etc).
4) Mr. Green is woefully underinsured for life insurance. He needs to be aware of this and recommendation for how much is appropriate and who should own the life insurance is needed.
The above example is an example of every other younger profitable small business owner in this country. Such a client is getting advice which in the “old days” was adequate under the standards of the industry. Not today and certainly not if you are a “Rated” advisor.
Mr. Green should have had discussed with him the items in 1-4 and a proper recommendation to protect his assets and family should have been made.
Example 2: a more complex plan.
Mr. Green is now 65 years old. He is still married and his children are grown. He has three grandchildren now as well. Mr. Green earns $400,000 a year, has a $1.5 million dollar brokerage account and a $1,000,000 in an IRA. He has a vacation condo in Palm Springs, CA with no debt which is worth $750,000. His personal residence in Ohio is worth $1,000,000 and it has no debt on it. He also has a $1,000,000 death benefit variable life policy which has performed poorly and now has $200,000 of cash surrender value in it. All of his assets are owned in his own name.
Assume he goes to have his estate plan redone. What advice is typically given?
Believe it or not, if he goes to a local estate planning attorney, he will probably get the same advice. He will be given new wills, durable powers of attorney and living trusts. He might have suggested that he should have his life insurance owned by and ILIT; but that it’s a headache due to the fact that it has $200,000 cash surrender value.
What advice should be given by an APS™ “Rated” advisor? It will depend on the rating of the advisor.
An AAA, AA or A rated advisor should be able to deal with the following problems.
-Asset protecting the brokerage account, the CA condo, and the personal residence.
An advisor who has an “O” (offshore) rating should be able to counsel the client on the option of using an offshore asset protection trust to protect the liquid brokerage account.
An advisor who has a “G” (global) rating should be able to counsel the client:
-with his underperforming life insurance policy and how to best fund a policy in an ILIT.
-reduce his income taxes by proper qualified or other advanced tax planning strategies.
-fund for his future long-term care expenses in a tax favorable manner while still working (preferably in a tax favorable manner).
-with the double tax problem of money in his IRA.
In order to become a “Rated” advisor, the advisor must demonstrate to the APS™ that he/she has the requisite knowledge to merit their particular rating.
Once an advisor has the knowledge, it would be a breach of the “Standard of Care” not to use that knowledge to help clients become asset protected.
As most readers of this site are aware, the vast majority of advice being given to clients nationwide does not even address the issues of asset protection. Those advisors who do provide advice on such topics many times provide inadequate or incorrect advice.
This again, is the reason the APS™ was created. To protect the public and to point out them those advisors who truly can help them implement a comprehensive and complete asset protection plan.