Asset Protection Planning Steps
Asset protection starts with gathering information about your assets then taking all of the necessary precautions. One example is as carrying auto and homeowners insurance. The problem is that no matter how much insurance you have you someone can always sue you for more. Therefore, the key is progressively building a wealth plan tailored the needs and preferences of the individual. As such, let’s cover some asset protection planning steps and a few tips that can give you security and peace of mind.
There are a myriad of options available to hold wealth. Some statutorily protect assets from lawsuits and judgments (depending on your state); life insurance, homestead protection, ERISA plans, are a few examples. Tenancy by the entirety and IRA creditor protection are some others. These options often come with state and federal law protection. The challenge with many is that your capital is not as available. Some come with penalties should you wish to access it. Additional home equity, maximum retirement account contributions and term life insurance are forms of protecting assets. You can consider these in your financial plan.
Above and beyond these financial concepts are estate planning and asset protection vehicles; ones that offer control and immediate access to your assets with strong protective features.
Dedicated Asset Protection Tools
Legal vehicles and business entities are designed to limit one’s liability. They can protect the assets and estates of individuals and families. These are various types of trusts, corporations, LLCs in most states and business-friendly foreign countries.
Incorporating a business using corporations and limited liability companies is one way to defend against business lawsuits. They also offer many tax advantages through business deductions. Limited partnerships, LLCs, trusts, properly structured, protect assets when someone sues you personally. Both sets of tools can extend a great deal of personal liability protection. Moreover, they can provide a fortress for your wealth when a legal attack comes your direction.
Business entities shield the personal assets of the shareholders and members. They create a wall from the liability of the business through the corporate or company veil. A company is a separate legal person. By creating one, you alleviate the risk of exposing personal assets to liability brought on from conducting business. You establish these business structures properly to maximize your asset protection benefits.
California residence may want to know about the California Private Retirement Plan that offers tax deductions and shields funds from creditors.
Asset Protection Trusts
Trust instruments allow you to transfer property to a separate legal tool but still enjoy the benefits of the assets. A settlor establishes the trust for the benefit of trust beneficiaries. Trusts offer a variety of benefits and certain types of trust offer stronger asset protection features than others. A living trust offers estate planning (when I die everything goes to the kids, for example). But it does not provide asset protection.
Asset protection trusts are special instruments whereby an individual can settle and fund a trust for the benefit of himself or herself. Plus, structured properly, they can help you qualify for government assistance programs such as Medicaid for nursing home needs. You use what’s called a self-settled spendthrift trust that is available in some jurisdictions. Professional structure these trust to protect assets. They usually add estate planning features.
These are true asset protection instruments. You hold assets in these legal vehicles. As such, the trust can only distribute assets to the beneficiaries named in the trust deed. Only a few states have statutes allowing for these types of trusts. They are relatively new in the United States. Several offshore jurisdictions are financial havens for asset protection. In fact, strongest of these are found in the Cook Islands, Nevis and Belize. These types of trusts and have the strongest case law history of protecting assets from judgments and U.S. court orders.
Combining Legal Tools
If you need asset protection you will want to do it right. The strongest plans will involve several legal tools. Start with with maximizing insurance coverage and retirement contributions. If you own a business, incorporate it. Own property through land trusts and LLCs. Finally, an asset protection trust locks in the most personal protection against nearly any form of legal attack.
Experts commonly nest these tools in order to combine the benefits of each. They often include multiple jurisdictions, domestic and foreign. When combining these legal vehicles you should do so with a qualified professional who can guide you through the process. You want to choose the right instrument in the proper jurisdiction to meet your individual goals and protection needs.