Asset Protection Strategies for Individuals and Families

We work hard for years trying to accumulate assets. We buy a home. We save for retirement. We invest. But far too few people take the time to protect those assets. If you’ve never given much thought to asset protection, now is the time.

Why Do You Need Asset Protection Planning?

Asset protection planning is a crucial component of wealth preservation. It allows you to implement safeguards that help protect you and your family from various risks. Let’s look at a few of the reasons you need an asset protection plan.

What Is Asset Protection?

Asset protection is about reducing your exposure to risk. This could be exposure to:

• Creditors
• Lawsuits
• Claims

There are many legitimate ways to protect your assets. However, asset protection planning should be done before a claim arises.

Legal and Ethical Asset Protection

Some people view asset protection planning as a way to avoid paying their debts. That is not the case. Rest assured, there is nothing shady about asset protection planning. When done correctly, it is completely legal and ethical.

Think of it this way. Just because you take measures to avoid getting hit by a car doesn’t make you a reckless driver who never uses your turn signal. You have the right to structure your financial affairs in a way that the law favors you.

Should You Worry About Asset Protection?

Whether you should worry about asset protection depends on your risk profile. However, everyone should be aware of asset protection, regardless of their situation. Why? Because we all face risks.

Someone could sue you after a car accident. You could be held liable for business debts. Medical bills and long-term care costs are another risk people face. It doesn’t matter if you have very few assets. If you don’t have an asset protection plan, everyone is exposed to risk.

Take Action Now to Protect What You’ve Earned

In today’s world, we face more risks than ever. Whether you are rich or poor, your family could face financial ruin if the right precautions aren’t put in place. Do you have adequate insurance? Is your home protected from creditors? Are your retirement funds safe from lawsuits?

These are just a few of the many questions you should ask yourself when it comes to asset protection.

Know Your Risk Profile

When it comes to asset protection, there is no one-size-fits-all solution. Just like different people face different risks, they also require different asset protection solutions.

Some of the factors that affect your risk profile include:

• Occupation
• Business ownership
• Wealth
• Family situation

For instance, someone who owns a business is generally at a greater risk than someone who does not.

Once you know your risk profile, you can take steps to help limit your exposure.

Trusts Can Help You Protect Your Assets

Trusts are among the most powerful tools for protecting your assets. Irrevocable trusts can be structured in a way that removes assets from your estate. This makes it difficult (if not impossible) for creditors to seize those assets.

There are certain trusts that can even protect your assets for children and future generations.

Keep in mind that trusts must be set up correctly and properly funded to provide the maximum amount of asset protection.

Don’t Leave Things to Chance – Get Insurance

The first line of defense for many families is insurance. Homeowners insurance, automobile insurance, and umbrella liability insurance are just a few examples of insurance that can provide you and your family with financial protection if a claim is made.

Umbrella insurance can be especially beneficial because it provides “excess” liability coverage. For the price of a meal out for your family, you can gain an additional layer of financial protection.

How You Hold Title to Your Assets Matters

How you hold title to your assets can have a major impact on your asset protection strategy.

For example, in Pennsylvania, married couples who own assets together may be able to hold title as “tenants by the entirety.” This could protect those assets from the individual creditors of one spouse.

There are other ways you can hold title to your assets that can provide a level of protection. Trusts and business ownership are two examples. Titling is one of the most misunderstood, yet extremely important aspects of asset protection.

Separate Personal Assets from Business Assets

If you own a business, it is extremely important that your personal assets are separated from your business assets.

One of the first steps you should take is to form a limited liability company or corporation. LLCs and corporations can provide a “shield” between you and your business liabilities.

Just forming an LLC or corporation is not enough. You must also:

• Keep accurate records
• Avoid commingling funds
• Run your business properly

If you don’t follow the above, your “shield” can be broken. This is known as “piercing the corporate veil.”

Plan Ahead for Long-Term Care

Long-term care (such as a nursing home) is another risk that can devastate a family’s finances.

Just because you have a million dollars in the bank doesn’t mean your children will receive that money. If you end up in a nursing home for several years, you can easily spend all of those savings on medical bills.

Planning for long-term care may include:

• Creating an irrevocable trust for Medicaid planning
• Long-term care insurance
• Gifts (in some circumstances)

Keep in mind, Medicaid is a need-based program. In order to qualify, you may need to “divest” yourself of certain assets. Note: Timing is everything with Medicaid, as there is a 60-month look-back period.

Retirement Funds Can Provide Built-In Protection

Certain retirement funds may provide built-in asset protection.

For example, qualified retirement accounts under ERISA often provide a high level of protection. It’s important to note that certain retirement funds are treated differently from others. Talk to your estate planning attorney about how your retirement funds can be protected.

Asset Protection Mistakes to Avoid

Far too many people wait until the last minute to try to protect their assets. And others try to take shortcuts by doing things themselves. Both scenarios often lead to bigger problems. Here are some common asset protection mistakes to avoid:

• Transferring assets after a claim has arisen
• Not funding your trusts
• Having gaps in your insurance coverage
• Out-of-date estate planning documents

If you’re like most people, your asset protection plan has vulnerabilities.

Get Ahead of the Game with Asset Protection

When it comes to asset protection, timing is everything. You’ll have more options and more flexibility if you implement asset protection strategies now rather than later. Imagine if you waited to get insurance until after an accident happened. It would be too late.

Don’t wait until it’s too late to protect what you’ve worked so hard for.

Get Help from a Bethlehem Estate Planning Attorney

Asset protection planning involves navigating a complex web of laws. Not only do you need to know your risks, but you need to understand various legal, financial, and tax implications. This is why you should work with an experienced estate planning attorney who can guide you every step of the way.

Ready to learn more about asset protection planning? Contact us today.