Asset protection planning is a proactive series of legal strategies designed to protect valuable assets from creditor claims. These techniques are often used by business owners, entrepreneurs and individuals to minimize the impact of creditor and civil judgments.
However, asset protection plans do not work well if they are implemented too late or not customized to your unique situation. Courts don’t take kindly to last-minute defensive moves, and judges and juries can nullify such tactics as fraudulent.
Tax-neutral
Asset protection planning is a way to organize one’s financial affairs in order to safeguard their assets from future creditors, lawsuits and predators. It involves transferring one’s assets from an unprotected form of ownership to a protected form of ownership.
There are many different vehicles that can be used to achieve this goal, including off-shore asset protection entities, domestic asset protection entities, LLCs, corporations and irrevocable life insurance trusts. However, for the most part, these methods will not save you income taxes or even lower your federal and state tax liabilities.
Moreover, most offshore trusts will not save you taxes, and all accounts that are located in an offshore jurisdiction need to be specifically reported to the IRS. These accounts need to be reported regardless of the amount in them.
Legal separation
If you and your spouse are facing financial problems or have children together, legal separation may be the best option. It can give you time to heal and prepare for a future relationship, while still maintaining some of your assets.
Depending on the laws in your state, permanent separation can change the property rights between spouses. For example, some states allow spouses to lose their right to ownership of debts they acquire during a permanent separation.
You can protect your assets during a permanent separation with an asset protection plan. These plans can include establishing a trust for separate property, opening credit in your name only, or other steps.
Having a solid plan in place will make the process of separating and divorce much easier on you, your family, and your finances. You should consult with a lawyer as soon as possible about your options.
Relatively easy to implement
Asset protection planning can be relatively easy to implement. Typically, the process involves transferring assets into protected vehicles such as family limited partnerships, LLCs and trusts.
The goal of an asset protection plan is to protect your wealth from creditors and civil judgments. This can be accomplished by a variety of legal strategies, including business succession planning, nuptial agreements, and family limited partnerships (FLPs).
There are a few tradeoffs involved in every asset protection plan. For instance, one must be careful not to compromise control over assets through irrevocable trusts.
It is also important to remember that asset protection planning should be done in advance of any potential lawsuits or other events. A properly designed asset protection plan can level the playing field in litigation and provide substantial negotiation leverage.
Prevents lawsuits
Asset protection planning prevents lawsuits by shielding valuable assets from creditors and other parties who might seek a judgment against you. Such a judgment can result in the loss of property, savings and other assets that you may need to maintain your quality of life or protect your family’s future financial security.
The most effective asset protection plan takes into account a variety of factors including personal risk tolerance, family relationships and the amount and type of assets you own. Ultimately, asset protection is a complex process that should be done in consultation with an experienced team of legal and financial advisors.
One key factor is timing. The longer you can put asset protection planning into place before a creditor files a claim, the better your chances of defending against it. That means putting the plans in place before your debts become unmanageable and your assets are exposed to losses.
