Why do you need asset protection from lawsuits? Why is it important? The reason is that financial security is crucial, whether it be for yourself or your family. Financial security also means protecting your assets from any potentially unforeseen financial or legal circumstances that could potentially threaten them.
What is Asset Protection?
At its heart, asset protection is about setting up the proper legal tools to guard your wealth. Examples include asset protection trusts, LLCs, corporations, and privacy trusts such s land trusts. Protect your assets is just one aspect of financial planning, one that is meant to secure those assets from potential creditor claims.
Both individuals and businesses alike use asset protection for several reasons. Whether it be to protect against creditors or limit potential liability in legal matters, the goal is to guard against seizure, legally reduce taxation, and other types of financial threats.
What is hidden can be found. So, asset protection is a legal way individuals and businesses can protect assets without illegally concealing them.
Discussing Asset Protection with a Legal Advisor
Even if there are no looming threats on the horizon, discussing asset protection with a professional advisor can be crucial. There are several issues you should discuss with your advisor to ensure proper protection.
Those things should include the following:
- Real estate planning
- Proper legal tools
- Avoiding probate and fraudulent conveyance
- Protecting assets from potential creditors
- Creating goals that are attainable be it for your business, family, or self
The right asset protection counsel can help steer you through the process. Whether you have any potential legal issues or not, you can have peace of mind in knowing that you have protected your assets. We have attorneys and consultants on staff, so feel free to give us a call.
Another reason to consider asset protection is for what comes in the event of your passing. Be certain that the appropriate parties, particularly family members, get the assets that you wish them to have when you are no longer here.
The Importance of Asset Protection
Working with the right legal expert can ensure that you have proper asset protection. There are several reasons why it can may make sense for you to do so. Here are some of the most prominent reasons to explore protecting yourself from lawsuits.
Whether it be a creditor or another financial predator, asset protection can help to insulate you against a potential lawsuit. When you properly secure your assets, it makes you less attractive for a potential lawsuit. The right firm will take a detailed look into any existing assets, ensuring which you can protect and which you can leave unprotected.
No matter how frivolous they may seem, someone can file a lawsuit against you at any time. Whether it be a wrongful or malicious claim, it can leave your assets within the targeting sights. Without proper asset protection, there is always the threat of substantial loss.
Working with the right team ensures that as much of your wealth as possible will remain safe and untouched after you have completed the legal process.
One of the more common reasons for asset protection is to ensure that your business doesn’t suffer serious financial damage. Companies that don’t properly insulate their assets wind up suffering major consequences, particularly when handling creditors.
If you do not protect non-exempt asset, creditors may have a genuine claim to that asset. Those assets are valuable to the life of the business. Losing them to a creditor can be potentially damaging or crippling to the business as a whole.
Any setback to the business can not only have financial repercussions but cause damage to both your personal and business reputation. Asset protection will help to remove many of the hurdles that come from leaving your assets open.
Protect Any Asset
There is a misconception that asset protection is only for the wealthy or for avoiding taxes. But that simply is not true. As a matter of fact, asset protection can prove to be useful for families and businesses, no matter if they are poor, middle-class, or wealthy.
More benefits come from asset protection than most realize. Even better, they pertain to any type of asset. If you aren’t sure whether your assets apply, talk to a legal expert to find out where you stand. It is better to be safe than sorry.
Liquid Asset Protection
For those who have predominantly liquid assets, there is a greater potential for loss should you not secure them. Protecting those liquid assets can ensure that you don’t suffer any great losses on assets that you have worked to accumulate.
For instance, recovering home equity can be more difficult. Your opponent would have to seize and sell the home. But it’s easy to scoop cash from your bank account. The best way to protect liquid assets is by setting up an asset protection trust.
Asset Protection Strategies
Asset protection is a broad term. Working with a legal expert can help to narrow down the field and determine which strategy is best for your needs. There is a plethora of strategies to choose from, each providing its own features and benefits. In this instance, there are three potential beneficiaries of an asset protection strategy: you (the client), a spouse, children, or both.
Client Asset Protection Strategies
These strategies provide benefits to the client, and protect assets throughout that client’s lifetime. There are four important strategies in particular: Asset protection trust (APT), LLCs, insurance, tenants by entirety, and investing in retirement accounts.
- Asset Protection Trust (APT). This strategy is the most powerful. It allows for the funding of a trust using your own property. It also allows you to maintain interest in the trust as a beneficiary. At the same time, it protects the assets within from creditors. Here is the problem. Few states have asset protection trust statutes. Plus, they only work if you actually live in and hold the assets in that state. So, the strongest is the offshore asset protection trust. An offshore trust works no matter where you live.
- LLCs. Limited liability companies can provide mid-level protection from two directions. LLCs can offer lawsuit protection for owners when someone sues your business. They can also provide asset protection to keep someone from seizing your business assets when someone sues you, personally.
- Insurance (auto, business, property). For liability reasons, this should be the first option. Policy limits should be in line with current net worth and assets.
- Tenants by entirety. For applicable states, ownership between a married couple can protect the asset from becoming targeted by a creditor-specific spouse. Some states limit this form of protection to real estate only.
- Investing in retirement accounts. In some states, you can protect your IRAs. You can generally protect 401(k)s in all 50 states. This includes events of bankruptcy, though there are limitations. You are not only protecting assets but can continue growing the retirement fund.
Spousal Asset Protection Strategies
There are also asset protection strategies that can prove beneficial to spouses. These strategies include a Spousal Lifetime Access Trust (SLAT), Lifetime Qualified Terminal Interest Property (QTIP) Trust, and Credit Shelter Trust.
- Spousal Lifetime Access Trust (SLAT). If you are sued, funds in this trust are not made available to creditors or used for the support of your family by a spouse.
- Lifetime Qualified Terminal Interest Property (QTIP) Trust. For the less wealthy spouse, they would receive the income from this trust as well as the principal. Should that spouse die first, then the assets will be included as part of the estate using the estate tax exemption. Funds can continue to benefit that spouse as well as chosen heirs of the wealthier spouse.
- Credit Shelter Trust. Though the spouse is the beneficiary in this trust, it isn’t considered to be a part of their estate. Should the surviving spouse choose to remarry, then these assets can’t be commingled with any assets of the new spouse.
Child/Spouse Asset Protection Strategies
Finally, there are asset protection plans that can protect the children and/or spouse in a marriage. Those include the Discretionary Trust, Irrevocable Life Insurance Trust (ILIT), Standalone Retirement Trust (SRT), and Inheritor’s Trust.
- Discretionary Trust. In this trust, the funds are not only held but invested by a trustee. They are then distributed but only based on your stated wishes. This trust can be a standalone or intermingled with other trust options.
- Irrevocable Life Insurance Trust (ILIT). This trust includes life insurance proceeds held for the intended beneficiaries. This is opposed to proceeds that are not involved in a trust, which get distributed outright. This trust can also provide liquidity should owners have illiquid assets (businesses).
- Standalone Retirement Trust (SRT). Holds a qualified retirement account, like an inherited IRA, in the name of the beneficiary. The trust protects the inherited account from any potential creditors because only the beneficiary would be entitled to the trust distributions.
- Inheritor’s Trust. This one applies to not only children but grandchildren as well. The beneficiary has control over the assets while also still getting protection from potential creditors. The beneficiary can also appoint or remove the trustee, replacing them with a trustee of their choosing. The trustee would then have the authority to issue distributions.
Creating wealth and developing assets takes an investment of time and money. The last thing you want to see happen is for those assets is to lose them because you have not properly protected them. Thankfully, some solutions can help resolve those issues.
Proper asset protection can be had with the help of Asset Protection Planners. Whether there are potential roadblocks in the near future, or you simply wish to remain insulated against the unknown, asset protection planning can put your mind at ease.