You work hard to accumulate your resources, and it is important to take the right steps to make sure that your assets are protected. In this post, we will look at the subject from an overview to give you some food for thought.
Small Business Asset Protection
If you own your own small business, you should be concerned about the potential impact of litigation.
When you have a sole proprietorship, there is no legal separation between your business and your personal assets, so you may want to use a structure that provides asset protection.
For many, a limited liability company (LLC) will be the right choice. When you establish an LLC, you are not personally responsible for debts that are incurred by the business.
Generally speaking, the same protection applies to personal liability for events that occur while business is being conducted. However, if you injure someone due to your own negligence while you are on the job, you could be held liable.
On the other side of the coin, the LLC would not be responsible for personal debts that are incurred by the owner.
Another asset protection structure that is used by some professionals, investors, and business people is the family limited partnership.
In a broad sense, the same dynamic exists with regard to the separation between the partnership’s interests and the personal interests of the respective partners.
Self-Settled Asset Protection Trust
A self-settled asset protection trust is a legal device that can be used by an individual to protect assets from future creditors. These trusts are alternately referred to as domestic asset protection trusts.
When you fund the trust, you cannot change your mind, because the trust would be irrevocable. You would name a separate party to act as the trustee, and they must reside in the state where the trust is created.
As the grantor, you would not be able to directly access assets in the trust, but you could potentially receive distributions at the discretion of the trustee.
The asset protection is solid, but it is not comprehensive. Assets in the trust would not be protected from tax collectors, child-support responsibilities, and spousal support orders. Under some circumstances, a court could order the release of funds in the trust.
These trusts are not legal in every state, and California is one of the states that does not recognize them. However, a Californian could potentially establish a self-settled asset protection trust in Nevada or another state that has legalized these devices.
Nursing Home Asset Protection
We would be remiss if we did not touch upon another type of asset protection that may never enter your mind. Just over half of senior citizens will need paid long-term care eventually, and Medicare does not cover custodial care.
Nursing homes and in-home caregivers are quite expensive, so these costs could be a threat to your legacy. Medi-Cal is another government health insurance program that will pay for long-term care, and most people in nursing homes are Medi-Cal or Medicaid beneficiaries.
You could convey assets into an irrevocable, income only Medi-Cal trust to prepare yourself for future eligibility. Advance planning is important, because you have to fund the trust at least 30 months before you submit your application for Medi-Cal coverage.
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