By Brendan King & Linda Cammuso
The term asset protection often conjures up images of Swiss bank accounts or hiding assets in someone else’s name. In reality, asset protection bears little resemblance to the stereotypical notions that capture the imagination. At its most basic level, asset protection simply involves protecting and preserving your assets from third parties.
Third party threats to your assets can come in the form of a lawsuit, divorce, business disputes, bankruptcy or other general creditor attacks. More and more clients are coming to recognize the importance of protecting their assets during their lives to ensure they preserve a legacy for loved ones. As a result, protecting one’s assets has joined the ranks of probate avoidance, estate tax reduction and long-term care planning as another, and vital, client goal in the estate planning process.
Some asset protection that you may already have
You may already have some asset protection in the creditor realm. Asset protection involves holding assets in a way that minimizes exposure to claims of current or future creditors. Even if you have never purposely engaged in asset protection, you may already have some protections in place. Investment vehicles such as 401 (k) or IRA accounts have automatic statutory protection from certain types of creditors and a Homestead on your primary residence protects up to $500,000 of equity from general creditors. Additionally, owning a home with a spouse as “tenants by the entirety” provides special protection of the home from each other’s creditors. A properly formed and administered business entity can segregate a business owner’s personal and business liabilities.
On a broader level, asset protection also involves avoiding costs and expenses. For example, if you have taken steps to minimize estate and gift taxes, avoid probate or shelter assets from future long-term care/nursing home costs, you have engaged in asset protection by preserving a greater net benefit for the future beneficiaries of your estate.
Creditor-oriented asset protection for at-risk professions and occupations
Some people, though, must consider more specific forms of creditor-oriented asset protection because of their profession (e.g. medical professional, contractor, attorney, business owner etc.) or other activities make it more likely that they could be sued. Others may own assets (e.g. rental property or business) that inherently expose them to claims by third parties such as tenants, clients or employees. If you are in such a situation, you need to engage in a more conscious level of asset protection through the estate planning process. Legal vehicles such as trusts and business entities (e.g. LLCs) can be effective to shelter exposed assets.
This article is intended to clear up any preconceived and possibly erroneous notions that you may have regarding asset protection. Once you identify asset protection as an important planning objective for you, your family or business your next step is to work with an attorney who is skilled in this field.
Estate Preservation Law Offices’ model of estate planning is built on the foundation of lifetime asset protection and preservation as a complement to traditional estate planning services. For more details about asset protection planning we invite you to read our Fall 2012 issue of Bridging The Gap at https://www.estatepreservationlaw.com/media-newsletter.html