Much of estate planning has to do with the way a person’s assets will be distributed upon their death. But that’s only the tip of the iceberg. From smart incapacity planning to diligent probate avoidance, there is a lot that goes into crafting a comprehensive estate plan. One important factor to consider is an asset protection plan. One of the most important things to understand about an asset protection plan is that not much good can come from trying to protect your assets reactively when surprised by situations like bankruptcy or divorce. The best way to take full advantage of estate planning in regards to an asset protection plan is to prepare proactively long before these things ever come to pass — and hopefully many of them won’t. First, let’s cover the two main types of asset protection:
Asset protection for yourself:
This is the kind that has to be done long in advance of any proceedings that might threaten your assets, such as bankruptcy, divorce, or judgement. As there are many highly-detailed rules and regulations surrounding this type of asset protection plan, it’s important to lean on your estate planning attorney’s expertise. Our thirty nine years of experience with asset protection matters, from enforcement of judgments to protecting physicians, developers and other high risk professionals and business owners from the risk of doing business, provides us with insight into and experience designing and implementing asset protection plans that few others have had the opportunity to experience..
Asset protection for your heirs:
This type of asset protection planning involves setting up discretionary lifetime trusts rather than outright inheritance, using staggered distributions, mandatory income trusts, or other less protective forms of inheritance. There are varying grades of protection offered by different strategies. For example,a trust that has an independent distribution trustee who is the only person empowered to make discretionary distributions offers much better protection than a trust that allows for so-called ascertainable standards distributions.
Don’t worry about the complexity – we are here to help you best protect your heirs and their inheritance.This complex area of estate planning is full of potential miscalculation, so it’s crucial to obtain qualified advice from experienced professionals, and not solely rely on common knowledge about what’s possible and what isn’t. Every person’s financial affairs and asset protection needs are as different and unique as is every person. But as a general outline, let’s take a look at three critical junctures when asset protection can help, along with the estate planning strategies we can build together that can set you up for success.
It’s entirely possible that you’ll never need an asset protection plan, but it’s much better to be ready for whatever life throws your way. You’ve worked hard to get where you are in life, and just a little strategic planning will help you hold onto what you have so you can live well and eventually pass your estate’s assets on to future beneficiaries. Experiencing an unexpected illness, a large-scale economic recession, an unscrupulous business partner, or an unpredictable jury, could mean you wind up bankrupt.
Bankruptcy asset protection strategy: Asset protection trusts
Asset protection trusts hold on to more than just liquid cash. You can fund this type of trust with real estate, investments, personal belongings, and more. Due to the nature of trusts, the person controlling those assets will be a trustee of your choosing. Now that the assets within the trust aren’t technically in your possession, they can stay out of creditors’ reach — so long as the trust is irrevocable, properly funded, and operated in accordance with all the asset protection law’s requirements. In fact, asset protections trusts must be formed and funded well in advance of any potential bankruptcy and have numerous initial and ongoing requirements. They are not for everyone, but can be a great fit for the right type of person and circumstances..
There are other types of entities that can be utilized to achieve asset protection objectives. Some are more complex, others are simpler. Again, your personal circumstances, the character of your assets, the source of potential liability, your own tolerance for risk and complexity, all will go into helping determine the most appropriate asset protection structure for you.
One of the last things you want to have happen to the nest egg you’ve saved is for your children to lose it in a divorce. In order to make sure your beneficiaries get the parts of your estate that you want to pass onto them — regardless of how their marriage develops — is a discretionary trust.
Divorce asset protection strategy: Discretionary trusts
When you create a trust, the property it holds doesn’t officially belong to the beneficiary, making trusts a great way to protect your assets in a divorce. Discretionary trusts allow for distribution to the beneficiary but do not mandate any distributions. As a result, they can provide access to assets but reduce (or even eliminate) the risk that your child’s inheritance could be seized by a divorcing spouse. There are a number of ways to designate your trustee and beneficiaries, who may be the same person, and, like with many legal issues, there are some other decisions that need to be made. Discretionary trusts, rather than outright distributions, are one of the best ways you can provide robust asset protection for your children.Family LLCs or partnerships are another way to keep your assets safe in divorce proceedings.Although discretionary trusts are advisable for people across a wide spectrum of financial means, family LLCs or partnership are typically only a good fit for very financially well-off people.
When an upset customer or employee sues a company, the business owner’s personal assets can be threatened by the lawsuit. Even for non-business owners, injury from something as small as a stranger tripping on the sidewalk outside your house can end up draining the wealth you’ve worked so hard to accumulate. Although insurance is often the first line of defense, it is often worth exploring other strategies to comprehensively protect against an unpredictable jury or other risk that may not be covered by your liability insurance policy.
One of the most important first lines of defense for those seeking to protect their assets is comprehensive liability insurance coverage, and importantly, a personal liability umbrella policy. Your property and casualty insurance agent can be a source of information about the options and the costs associated with a good excess coverage liability insurance policy.
Judgment asset protection strategy: Incorporation
Operating your small business as a limited liability company (commonly referred to as an LLC) can help protect your personal assets from business-related lawsuits. In Florida, and a few other states, operating as an LLC can also help protect the ownership of your business from other creditors, if you follow the proper procedures..As mentioned above,malpractice and other types of liability insurance can also protect you from damaging suits. Risk
management using insurance and business entities is a complex discipline, even for small businesses, so don’t only rely on what you’ve heard online or “common sense.” You owe it to your family to work with a group of qualified professionals, such as us as your estate planning attorney and an insurance advisor, to develop a comprehensive asset protection strategy for your business.
These are just a few ways we can optimize your estate plan in order to keep your assets protected, but every asset protection plan should be tailored to an individual’s exact circumstances. Give us a call today to discuss your estate plan’s asset protection strategies.