Estate planning can have many goals. Asset protection is one of those goals. Being able to protect your assets from creditors and other sources of liability can be very beneficial. As your asset protection lawyer will tell you, preserving as much of your estate as you can for your heirs can only be accomplished if you properly protect your assets.
When should I see an asset protection lawyer?
When should you start your asset protection planning? Now. The general rule is – you need to start planning before your creditor’s start making claims against you. While there are several ways to go about protecting your assets, many are not effective if your creditors have already made a claim against you, or some other financial liability has arisen. Why? Because in many cases, if you transfer your assets after a claim has been made, the transfer may be considered fraudulent. In other words, the courts may say that you transferred your assets in order to avoid paying your debt.
You must avoid fraudulent transfers
The most common type of fraudulent transfer is when a debtor sells or gives away most of their assets to a relative in order to keep that property out of their creditors’ reach. In order to avoid this situation, you need to plan ahead and make proper transfers for assets before it’s too late. But, how do you know who is a potential creditor? This can be very difficult to determine. So, discuss your financial situation with your asset protection lawyer to be sure you consider the possibilities.
Asset protection tips for business owners
It is equally important for business owners to protect their assets, as it is for an individual. In fact, it may be more important as business owners typically have more sources of debt or potential liability. Here are some examples of ways that a business owner can avoid potential liability:
- avoid high-risk investments
- exercise extraordinary care when hiring employees
- refrain from loaning cars, boats and other dangerous equipment to someone else
- avoid joint ownership in such dangerous equipment
- include indemnification language in all contracts, where appropriate
Why do I really need an asset protection plan?
Asset protection basically involves analyzing your assets and arranging them so that you can provide the most protection against loss possible. If you engage in asset protection properly, with the help of an asset protection lawyer, the process is completely legal. In fact, you can effectively protect all of your assets from unexpected risk of loss, without any type of fraud or tax evasion. Without protection, though, you could leave much less behind for your family than you intended, simply because the creditors must be paid first.
Asset protection planning is not illegal
A common misconception that many clients have is that asset protection planning involves under-the-table transactions meant to evade and deceive. That is not the case. We all have the option of structuring our assets in a manner that is financially beneficial to us, as long as it is done within the limits of the law. In reality, the only time fraud becomes an issue is when the obvious purpose of the asset protection plan is to hinder, delay or defraud creditors from collecting valid debts. This can be avoided by creating your asset protection plan before the creditors’ claims arise.
Business owners should always keep personal assets separate
Business owners would be wise to keep all of their personal assets separate from their business assets. Put another way, never commingle your personal funds with your business funds. This is true regardless of what type of business entity you have. While there are specific business entities created with the specific purpose of protecting the personal assets of the owner, if those assets are not kept separate, then that protection will likely be lost.
How can I protect my assets early on?
When it comes to easy and comprehensive asset protection, a trust is a good choice. How does a trust provide asset protection? Essentially, when you transfer your assets to the trust, they become the property of the trust and are removed from your estate. That means, they are beyond the reach of anyone with a claim against you. They are also no longer subject to estate taxes. There are numerous types of trusts and they are all customizable, so you should go over your options with your asset protection lawyer.
If you have questions regarding asset protection, or any other estate planning needs, please contact the Schomer Law Group either online or by calling us at (310) 337-7696.