Asset protection is a very important part of estate planning. Protecting your assets from any type of creditor is crucial in preserving your estate for your heirs. Anyone who obtains a judgment against you, not only a bill collector, is considered a creditor. We need asset protection planning as a part of our overall estate plan for many reasons. Here are just a few.
The purpose of asset protection
Asset protection refers to analyzing your assets and arranging, or rearranging, them so that they provide the most protection against loss. It does not require fraud or tax evasion. Instead, when done correctly, asset protection is completely legal. With the help of an estate planning attorney, your properly executed asset protection plan will prepare you for unexpected circumstances that might place your estate at risk.
When you should start asset protection planning
The most effective asset protection plans are established well before any creditor’s claims have been made. If not, any transfer of your assets as part of a belated plan will likely appear as fraudulent transfers. The reality is, most of us do not recognize every possible source of liability until it’s far too late. After you have received a demand for payment or been served with notice of a legal proceeding against you, it’s too late.
Supplement your asset protection plan with liability insurance
Even with a comprehensive asset protection plan, having liability insurance is still a good idea. This is particularly true for home and business owners. With liability insurance, defending a lawsuit is much easier. Your insurance provider will take over your defense and pay any settlement or judgment. An asset protection plan alone, on the other hand, is not really designed to defend against legal actions.
Keep personal assets separate from business assets
Business owners must remember to keep personal and business assets completely separate. Commingling of funds is never wise. There are specific business structures, like Limited Liability Corporations (LLCs), which are intended to protect the owner’s personal assets, when operating properly. If business and personal funds are commingled, the business owners are putting their personal assets at risk.
Early asset protection techniques
A trust is probably the most common estate planning tool used for asset protection. When assets are placed in a trust, they are essentially removed from your estate. That means, they are no longer subject to estate taxes and beyond the reach of creditors. There are several different types of trusts, and they are flexible and customizable. Discuss your options with your estate planning attorney to determine the type of trust that best suits your needs. The earlier you start putting your asset protection plan in place, the better it will work for you.
If you have questions regarding trusts, or any other asset protection planning issues, please contact the Schomer Law Group either online or by calling us at (301) 337-7696.