Whether you’re straight out of college or a seasoned employee with years in the workforce, if you own any assets, you’ll want to make sure they’re protected before protection becomes a necessity. Below are five asset protection steps that you’ll only hear from an estate attorney.
Start Planning Before A Claim Arises
We can’t predict the future, but we can take the necessary steps to ensure that our assets are protected against any claims the future might bring. There are many things you can do to protect your assets before a claim or liability arises; the list shortens considerably afterwards, mainly because anything you do after a claim rises can oftentimes be reversed by the “Fraudulent Transfer” law.
Asset Protection Is Not A Substitute for Insurance
Asset protection is not and should not be used as a substitute for liability insurance. If you were to get sued, an asset protection plan will not cover the legal fees to defend against a lawsuit, while an insurance plan most likely will (that’s what you’re paying the premiums for. Rather, proper asset protection supplements an insurance policy since it can help the debtor survive a fraudulent transfer claim as long as the asset protection was done considerably ahead of time.
Utilize Exempt Assets and Gifting
Exempt assets such as retirement plans and 401(k) accounts are, through their nature, protected from creditors. Life insurance and annuities are in some jurisdiction also considered exempt assets and are a great way to park your assets to protect them in the event of a future claim.
Another method of protecting your assets is gifting, or transferring property out of your name and into the names of family members or loved ones. Gifting could include outright gifts to children, or gifts to a trust or family LLC. For the purpose of asset protection though, if a gift is made to a trust must be made to an irrevocable trust for the assets to be unaccessible to creditors.
Use Entities!
Utilizing limited liability companies as well as other corporations to store your business assets can serve a major purpose when it comes to asset protection. With a limited liability company, if a liability does result from a business activity, any debt you may potentially owe will not spill over into your personal assets. Similarly, if a liability occurs outside of business activities, an LLC will still protect your assets for creditors seeking to claim them.
Everything Will See the Light of Day
Asset protection should be done with the expectation that the strategy and purpose behind the asset protection plan will eventually become known to creditors. That being said, asset protection plans that involve secrecy will face significant problems in the long run. Additionally, going into bankruptcy without making a full disclosure about your assets and relevant transfers will simply not be possible. Failure to disclose said info will usually lead to a denial of discharge, and failure to make a truthful disclosure can result in charges of perjury or even bankruptcy fraud.