For many clients, asset protection is a key reason to do estate planning. Asset protection can take many forms. Most commonly, clients want to make sure that once inherited, assets are protected from their beneficiaries' financial misfortune - divorce, bankruptcy, creditors, lawsuits, etc. In this article, though, we're going to deal with a different type of asset protection.
How do you protect your assets from your own creditors during your lifetime?
Clients who need this type of protection almost always fall into one or more of these categories:
- You're in a high liability line of work - maybe you're a surgeon or you own a trucking company or you own rental property - and you want to make sure your personal assets are not exposed to professional or business liabilities.
- You're entering a new marriage, and you want to make sure your assets are protected from your new spouse's liabilities or an eventual divorce.
- You're generally wary of the possibility of creditor issues, bankruptcy, or lawsuits, and you want to make sure your assets are protected if and when that happens.
Five Considerations for Asset Protection
Asset Class
Certain assets are already protected, at least in most circumstances. Your primary residence, for instance, is already protected from most of your potential creditors and lawsuits. In many cases, you don't need to take additional precautions to protect your house from judgments. Similarly, retirement plans like IRAs and 401ks already receive some strong protections by both state and federal law.
Timing
In asset protection planning, timing is EVERYTHING! The key takeaway here is that you should do this type of planning when you don't need it. That is, if there is already a liability - an ongoing lawsuit, a pending lawsuit, a valid creditor's claim, divorce, bankruptcy, etc - your attempts at asset protection planning are going to fail. During such times, any transfers made for the purpose of asset protection will be considered "fraudulent" or "voidable." That is, those transfers will be reversed and the assets exposed to loss.
Insurance
Don't forget about the power of insurance, particularly personal liability or "umbrella" policies. These are often easy to qualify for and relatively inexpensive. Umbrella policies are intended to pay for the problems arising from your personal liabilities, protecting your assets by providing additional resources to cover costs.
Entity Choice
If you have investment assets or income producing property, consider creating a business entity - like an LLC or Family Limited Partnership - to own the underlying asset. The purpose of the entity, if compliance requirements are met, is to separate your personal assets and liabilities from your business assets and liabilities. That is, assets owned by your business are protected from your personal liabilities, and assets own by you personally are protected from your business liabilities.
Trusts
Once you've considered all of the above - assets that are already protected, timing, insurance, and entity choice - you should consider whether trusts might be a useful way to cover any remaining exposure. A vacation home, brokerage assets, cryptocurrency, or valuable personal effects, among many other types of assets, may still be exposed. There are a variety of trusts that can help provide important protection, depending on the specific asset, your key relationships, and what you're wanting to accomplish. These would include Domestic Asset Protection Trusts, Foreign Asset Protection Trusts, Spousal Lifetime Access Trusts, Intentionally Defective Grantor Trusts, and several others.
The Point
Asset protection is possible, but you need to plan carefully. This is not a time for a do-it-yourself mindset. You should be working with attorneys and financial professionals who are familiar with the ins and outs of asset protection.
Schedule Your Asset Protection Consultation
It costs nothing to schedule a consultation, and we can meet in person, via video chat, or by phone. We'll use that conversation to find out more about you and your priorities and to educate you about your options. To get started, call us at (918) 770-8940, or send an email to firm@tallgrassestateplanning.com.
Disclaimer: Reading this blog post does not create an attorney-client relationship, and it is not formal legal advice. This is for information purposes only. It is always best to speak with an attorney about your questions, assets, concerns, and needs.
