Do You Need Asset Protection Planning?

asset protection planningMany people coast through life, never really giving much thought to asset protection planning. What it is, or whether it is something they need to consider in their overall planning scheme.

Consider this. You may need asset protection planning if you will one day find yourself staring at a financial disaster or even a lawsuit.

But right now everything is fine, you say?

A financial disaster can strike at any time, in many different ways. Sometimes you will see it coming, often you won’t, or it will be upon you so quickly that you didn’t even realize it was a disaster until it was too late.

Here are some examples of things that could happen to you that some simple asset protection planning could assist with:

  • Divorce
  • Unanticipated medical bills
  • Getting sued by an employee or a business partner
  • A motor vehicle accident where the responsible party was uninsured or underinsured
  • Professional malpractice allegations against you
  • Bankruptcy
  • Lawsuits arising from damages or injuries sustained at your home or business

This is a scary list, isn’t it?

Let’s take a minute and discuss what asset protection planning is, and what you can legally do to protect yourself with the help of an estate planning attorney.

Asset Protection Planning as a Tool to Protect Against Tragedy

The whole point of asset protection planning is to arrange your property and assets in such a way that they cannot be reached by creditors in a bankruptcy or lawsuit.

The most common examples of asset protection planning occur when people transfer business assets into various entities such as corporations or limited liability companies, and personal assets into various trusts.

A proper asset protection plan will allow you to maintain control (but not too much control) over the assets that you no longer own from a purely legal standpoint. Because the assets are owned by a corporation in the case of business assets or a trust in the case of your personal assets, they a not subject to seizure by a judgment creditor.

5 Things to Consider When Preparing an Asset Protection Plan

If you think that you may need to prepare some type of asset protection plan, there are a couple of things you should be aware of before you start this process.

  1. Start Early. You can do a whole lot more planning before a claim arises against you than afterward. If you transfer assets out of your name after a claim arises, it could be considered a “fraudulent transfer” and undone by a court. Also, you should understand that a claim will arise well before you actually get sued – usually it would be the date that the injury occurred or the debt was incurred.
  2. Don’t forget about insurance. You should never let asset protection planning take the place of a good old-fashioned insurance policy. If you are young and healthy, time to start looking for life insurance. If you don’t have health insurance, you need to get some – even if it is just catastrophic coverage (and regardless of whether the Affordable Care Act will be around or not). Auto insurance is some of the cheapest insurance you can buy – consider maximizing your coverage up to the limits your insurer will allow. Other policies you may want to consider include a general liability policy for your business, workers compensation (required in North Carolina if you have more than 3 employees), and professional malpractice insurance. If you get sued, you will pay the deductible and the insurance company will hire and pay a lawyer to defend you.
  3. Don’t retain too much control. When transferring assets to an asset protection trust, you cannot retain too much control. You need to walk a fine line between retaining enough control that you can provide for yourself if you need the money and not having so much control that the creditor can reach the trust assets. An estate planning attorney can assist you in making sure your trust is drafted the correct way.
  4. You can’t reduce or eliminate legitimate debts. Asset protection planning will not relieve you of your legal obligation to pay a debt. It will simply reduce the amount of funds that a creditor can access to collect the debt from you.
  5. Keep it Simple. If you can’t explain your asset protection plan, it is probably too complicated. You should be able to discuss your asset protection plan simply and in clearly understood language. If you can’t, and you can’t properly explain where your assets went, then a court is likely to undo your sophisticated plan.

What’s the Bottom Line with Asset Protection Planning?

There are lots of well-intentioned, law-abiding citizens in our communities that get into financial trouble. As business owners and professionals, we often have targets on our back.

But with some careful planning ahead of time, you can take appropriate steps to ensure that you won’t lose everything when tragedy strikes.

Learn more about Asset Protection Planning

We are happy to extend an offer to meet with you for a no-charge Wealth Planning Session ($350 value) in our Cary office. As a Cary Estate Planning and asset protection lawyer, we can help review your situation, ask some difficult questions, and custom tailor a plan that will work for your family and/or your business.

However, we do limit the number of meetings we make available each month, so please call us at (919) 460-5422 or fill out our online contact form if you would like to schedule a session.