Asset protection planning is not a new concept. It has been practiced for ages, and it is almost certain that you have already employed some type of asset protection planning. Unfortunately, the asset protection that most people have in place will not be thorough enough.
What is Asset Protection Planning?
The purpose of asset protection planning is to protect your assets from some type of future claim or even the threat of a claim. Asset protection planning will not be able to protect your property from existing claims. True asset protection planning will be done well advance of even the hint of any claim.
Good asset protection planning provides protection in several ways:
- It provides a motivation for settling a claim
- It improves the bargaining position of the asset owner
- It provides options in the event that a claim is put against the asset
- It discourages litigation by those who feel they have a claim against the asset
Traditional asset protection planning has been in place for years and is commonly used under a variety of names. A very common example is liability insurance. Most people have a minimum of one liability policy in place at this very moment. While liability insurance is often a necessity, it also often fails as an asset protection plan for the following reasons:
- It is viewed by many as “easy money”
- It often provides in adequate coverage
- It is often undermined by multiple exclusions
- It can fail to protect your assets if the provider becomes insolvent
Another common way that people practice asset protection is through the use of a legal business entity. Such entities, such as a corporation, will separate business assets from personal assets. It is true that a corporate entity may protect your personal assets if a lawsuit is filed against the assets of the corporation. However, this corporate entity will not protect your corporate stock if you are personally the subject of a lawsuit. Even worse, if a corporation does not conduct its legal affairs properly your personal assets may become the victim of a judgment rendered against the corporation.
Another type of asset protection planning that is commonly practiced is the legal ability to exempt specific assets against any claims of creditors. These examples may include:
- Jointly-owned property of two spouses
- A primary residence
- The cash value of a life insurance policy
- Retirement account investments
The down sides of these legal asset protection strategies is that they are usually subjected to certain limitations. An example of these limitations would be the placing of a cap on the value of a protected asset.
What Can You Do?
It is a common misconception that only those with large estates need to worry about advanced asset protection planning. However, if you have accumulated any amount of wealth, you should consider advance estate planning. Any person who has any collection of assets can be the subject of a lawsuit. The use of more advanced asset protection planning (like irrevocable trusts and complex business structures) is really the only way to protect the assets of your family.
We would love to use our expertise in asset protection planning to help you formulate a unique plan to protect your family’s assets and financial security. Call us today and set up an appointment.