What is attorney/client privilege?
When someone retains an attorney, they need to be able to discuss their legal concerns freely with an attorney, so that the attorney can accurately assess their situation and give the best legal advice. Also, if a plaintiff’s attorney was privy to all discussion between a defendant and his attorney (and vice-versa) they would have a hugely unfair advantage during trial. In light of this, the courts respect a certain type of confidentiality between the attorney and his client, which is called attorney/client privilege. This means that discussions between the attorney and his client can’t be involuntarily disclosed in court (by testimony, subpoena, discovery, deposition, or any other means) or during any investigation, regardless of whether the proceeding is civil or criminal in nature. Of course, the client (though not his or her attorney) could volunteer such information if s/he wanted to. It should be noted that only attorneys have this privilege; CPAs do not have attorney/client privilege between them and their clients.
What is privileged work product?
Privileged work product is basically an extension of attorney/client privilege to legal services provided by an attorney to his client. Any such product (such as the drafting of an LLC operating agreement) can’t be involuntarily produced during any stage of a court proceeding. Of course, a client (but not the client’s attorney) could volunteer the production of privileged work product documents.
When an asset protection planner or paralegal works is retained by an attorney on behalf of the attorney’s client, attorney/client privilege and privileged work product extend to any communication between the attorney and the planner, and any work done by the planner. This could be very beneficial in asset protection planning, since setting up a plan to thwart even distant future creditors may in some circumstances be regarded ipso facto by some courts as a fraudulent transfer. An example of this can be found in the court case U.S. v. Bryce W. Townley (East Washington U.S. Distr. Court, No. CS-02-0384-RHW, 07/29/2004), which says, in part:
“Plaintiff asserts that Mr. Townley’s statements that he intended to protect his assets from anyone who might get a judgments against him is conclusive, direct evidence of intent to hinder, delay, or defraud. The Court agrees.”
If Mr. Townley would have set up his program under an attorney, he could have invoked attorney/client privilege and thus refused to answer questions which made him admit asset protection as the primary purpose of his planning. The case may have then had a completely different outcome!
It should be noted that there are instances where attorney/client privilege and privileged work product will fail. For example, if an attorney and his client conspire to commit fraud or an illegal act, then a court may compel disclosure of what would normally be privileged communication. At the same time, if a client retained an attorney and then confessed to the attorney that he’d committed a crime, the attorney could not be compelled (nor could volunteer) to reveal his client’s confession. So, generally speaking, attorney/client privilege and privileged work product will be respected in most circumstances.