Beginning Asset Protection Planning
Once you make the decision to protect your wealth, what do you do? The first step in asset protection planning is to, first, determine the value of your assets. Second, is to assess your risks and liabilities. This determines how much protection you need. Your comfort level and to some extent, budget, will also guide the beginning stages of your asset protection planning.
Asset protection planning 101 is that your strategy should an estate plan. Being sure to address this is a prudent way to approach the subject.
Protecting savings and liquid assets is different than protecting the family home, future income and real property. When you assess and consider your portfolio, you can compartmentalize the assets and their values. That is because you can limit the risk and liability through separate legal tools.
Divide and Conquer
You limit liability when you separate your assets into various legal tools. When everything is tied to your individual name, you leave your assets at risk. Should someone name you as a defendant in a lawsuit, most items in your own name can disappear. A slip and fall incident on a rental property can jeopardize your personal assets. Without legal separation through some kind of asset protection you are vulnerable. Protection begins by using legal tools that separate risk and liability from your wealth.
When an asset protection plan is in the design stages the personal preferences and one’s own comfort level will play a big role. When using legal entities to protect assets there are annual expenses, reporting and operating formalities for each. Typically this is a single statement of information and nominal annual state fee. These legal entities provide protection and limit the liability of the shareholders or members. Some people are more comfortable with multiple entities. They prefer a higher degree of legal separation of risk and assets, where others prefer a simpler approach.
You and a consultant can work together to determine your financial plan’s complexity. Deciding factors include how much risk one’s business, occupation, lifestyle or personal situation poses to their assets. One guideline in developing protection planning is the value of the asset(s) you encumber into protective vehicles. Plus, the type of the asset(s). Some assets have internal liability, such as motor vehicles. You should separate them from safe assets, such as bank accounts.
For example, a business with vehicles and employee drivers is a huge liability with massive amounts of risk. You can encumber business assets, intellectual and real property into separate business entities. As such, a lawsuit resulting from an at-fault employee auto accident does not jeopardize the other assets of the business. This concept holds true for personal assets and protecting one’s real property. The key is in separating assets from as much risk and liability as necessary or possible. Being comfortable with is the framework for beginning asset protection planning is also important.
You should conduct asset protection planning in compliance with all laws. Should you implement it without any intent to defraud or intentionally shelter your assets from those who may have a fair request to satisfy an obligation already made? Or should you take action to protect yourself in spite of outside opinions? The moral decision is based on taking action to reduce the exposure of your assets to future creditors, frivolous lawsuits or unwarranted liability.
Some legal tools and instruments are designed solely for limiting liability and protecting the wealth of individuals. Counts understand them well. It is up to you to secure your wealth by taking advantage of these tools and resources.
Protective Planning and Action
Most of us believe that seeking legal help is a reactive initiative – hiring legal assistance only when you need to respond or defend against something. In the case of asset protection you are assembling the resources when times are good. Timing is critical to creating legal protection of your finances – courts can challenge and negate a desperate transfer of assets in the face of a threat. Most individuals will take asset protection seriously only when a lawsuit or a pending legal threat faces them head-on.
Relying on a financial foundation that is protected by a skilled plan is peace of mind for you and your family. Correct and proactive measures are the only way to achieve the highest amount of security.
Points to Remember
- Asset protection is legal and moral
- Solid planning is critical to protecting your financial future
- Accept the legal system for what it is and take measures that protect you
- Asset protection is a continuous commitment
- You should to work with experienced and qualified professionals
- Protect all of your assets, even future assets
- The most secure starting point is right now
Things to Avoid
There are a number of ill-advised actions that have been attempted in the face of legal threats. These include gifting assets to a trusted friend, spouse or children, selling them for less than market value and many more. The true test of an asset protection maneuver or action is whether or not your creditor can persuade the court. Can they get a judge to rule that your action was a deceptive act to transfer assets out of their reach? Court cases repeatedly defeat desperate transfers to friends or loved ones.
Passing the Test
It is best that your asset protection plan pass the fraudulent conveyance  test in order to succeed in a court of law. Last ditch efforts to move assets during legal duress are rarely successful and can bring fines and even criminal charges. You cannot bypass financial obligation by tossing your assets to someone you trust. It won’t work to use another equally injudicious attempt to shelter liability from a valid creditor claim. Proper asset protection planning includes the use of proper legal tools such as domestic and foreign trust and LLCs.