Asset protection is a wealth strategy that helps you protect your assets from creditor claims. It is useful for both individuals and businesses. Proper planning can prevent creditors from having access to some of your most valuable or precious assets. It is often used in conjunction with an estate plan because many of the tools used for asset protection planning are also estate planning tools.
Some clients become uneasy about the idea of asset protection planning because they assume that moving your valuables to avoid creditors is illegal. However, proper asset protection planning operates within the confines of applicable law—there is no intention of hiding of property to evade a particular creditor that has a specific claim. There are situations where poor asset protection planning can lead to allegations of fraud, but if you use an experienced estate planning attorney to help with this process, there should be no question of legality.
Who Needs Asset Protection Planning?
Everyone can benefit from asset protection planning because everyone is susceptible to lawsuits. Businesses are often more exposed, but even individuals can be on the receiving end of a lawsuit. For example, if someone falls on your property, they may file a claim against you individually. Your homeowner's insurance might help, but if it is a serious injury, your personal assets may be at risk. Asset protection planning removes some of your most valuable assets so that a judgment will not affect them.
Some people assume that asset protection planning is only useful for the extremely wealthy. This is not the case. Everyone is vulnerable to lawsuits, and sometimes those with less risk losing more.
How Does Asset Protection Work?
Both business and individuals can benefit from asset protection planning. Business assets are often grouped into categories, and each category of property is associated with a different entity, such as a limited liability company (LLC). For example, a rental company may put each large property its owns into its own LLC. That way, if a lawsuit or other claim arises, only one piece of property is at risk.
Individuals often use trusts as part of their asset protection plan. Trusts are flexible tools that also help with estate planning. Individuals can use LLCs as well, but they may only be appropriate in some situations.
When Should I Start Planning?
Thinking ahead is important for asset protection planning. If you wait to protect your assets when they are actually in trouble, you can run into problems with the law. Avoiding a specific creditor can result in accusations of fraud. Timing also plays a big role. If you move assets shortly before a judgment or while a lawsuit is pending, such actions can be voided entirely, undermining your entire asset protection plan.
If you want to engage in asset protection, you need to start now, while the waters are calm. Proper planning can prevent significant losses in the future.
How Can I Find Out More?
Your estate plan may benefit from asset protection planning. You can talk through your financial situation and estate planning needs with an experienced attorney. Andrew Byers can help you determine how asset protection planning can fit into your estate plan.