Warning: Your Current Asset Protection Plan Might Not Be Enough
You may be surprised to learn that asset protection planning has been around for quite a while, and chances are, you’ve already implemented some form of it yourself. In fact, you probably have one or more traditional asset protection strategies in place right now. The problem is that, in many cases, these methods may not provide adequate protection for you and your family.
What Is Asset Protection Planning?
Asset protection planning involves strategically positioning or relocating your assets to preserve and safeguard your property before a claim arises or the threat of one emerges. This type of planning won’t protect your assets if a claim already exists. It needs to be done well in advance, before any hint of a legal issue. Attempting to move assets to shield them from current creditors could be seen as fraudulent, potentially resulting in legal consequences.
The goal of asset protection planning is to make settlement offers more appealing, improve your negotiating position, provide alternatives when a claim is made, and ultimately, reduce the likelihood of litigation.
Why Traditional Asset Protection Planning Often Falls Short
Many forms of traditional asset protection planning have been used for years. The most common is liability insurance, including automobile, homeowner’s, personal property, umbrella, malpractice, and officers’ and directors’ insurance policies. You likely have at least one of these policies. Unfortunately, liability insurance can sometimes encourage lawsuits, as it may be seen as “easy money.” Additionally, it often falls short because the coverage is insufficient, there are significant exclusions, or the insurance provider becomes insolvent.
Another commonly used asset protection strategy is setting up a business entity, such as a corporation or limited liability company (LLC), to separate business liabilities from personal ones. While a properly structured business entity can protect your personal assets in the event of a lawsuit against the company, the reverse is not true. If you're personally sued, your ownership in the company might be vulnerable to a judgment. Moreover, your personal assets could be at risk if the company doesn’t follow the required legal formalities.
Lastly, some traditional asset protection is provided by state laws, which exempt certain property or accounts from creditors' claims. This might include jointly owned property (such as tenancy by the entirety), a primary residence (protected homestead), the cash value of life insurance, retirement accounts, and annuities. However, these exemptions often have limitations, such as caps on the value of a protected homestead.
What Should You Do Next?
You might think that advanced estate planning and asset protection are only necessary for the wealthy, but anyone with assets can be sued. The only way to fully safeguard yourself and your loved ones is to adopt more advanced asset protection strategies, such as irrevocable trusts and complex business structures.
We can help you go beyond traditional asset protection methods and create a comprehensive plan tailored to your unique situation and financial goals. Call today to schedule your asset protection consultation.