Asset protection planning has become necessary and imperative to shield your hard-earned money and growing asset holdings from the rising uncertainties of modern life. Asset Protection planning utilizes legal safeguards that preempt the risk of losing your assets due to unforeseen liabilities. Asset Protection Planning protects your wealth from adverse lawsuits, creditors, acts of negligence, bad marriages, and family disputes that could potentially divest you from your assets. Devising tactical legal strategies will enable you to hold on to to as much of your assets as possible and prevent those who would take them from you.

What is Asset Protection Planning?

Asset protection planning simply means the creation of various protective measures available within the existing legal framework to insulate your wealth from any potential future creditor. An integral part of financial and estate planning, asset protection shields  your property from anything or anyone who can take your wealth. Once put in place, a well designed plan protects your wealth during your lifetime and secures it after your death ensuring lasting protection for your family and solidifying your continued legacy.

Asset protection planning can be used by  individuals and businesses to restrict creditors’ claims and limit confiscation and collection efforts following lawsuits and liabilities. These shields keep your assets protected, while you maintain control. They also discourage lawsuits, assist with intelligent tax planning strategies, and help protect financial losses associated with chaotic market conditions.

Asset protection planning involves the strategic use of statutory and common laws to formulate protective strategies for your tangible and intangible wealth. Asset protection starts with segregating assets and holding them in purpose-made legal entities that you control. These entities may include trusts, limited liability companies, limited liability partnerships, irrevocable trusts, off-shore planning, domestic asset protection, universal indexed life insurance, tactical money management, and proper use of fixed indexed annuities and other strategies.

Additionally, a well designed plan will utilize assets that can be exempted under the law including homestead statutes and retirement exclusions that are safely protected from claims of debtor-creditors

Why Do You Need Asset Protection Planning?

The primary objective of asset protection planning is to limit the effect of any claim or attempt to take control of your property and assets. Proper planning keeps your assets safe from lawsuit arising from your own acts of omission or commission, bad marriages, financial liabilities, and even potential family disputes over property can rob you of your wealth unless you have created a shield for bad times.

The emergence of “asset protection planning” was original designed to safeguard personal assets from negligence lawsuits. Negligence lawsuits are legal actions brought against you following an act of negligence that, if successful, could  divest you of your hard-earned wealth. If you are found liable, you could have to pay large sums of  money as punitive and compensatory damages. Non-payment may lead to seizure and selling of your assets. If you have a properly planned asset protection in place, it can save your wealth from any judgment-ordered seizure in the event of the following types of lawsuits.

  • Professional liability: If you are a doctor, lawyer, CPA/EA/accountant, architect, etc., you have a “personal liability” that can’t be shielded through the use of a corporate entity. Unless you have an asset protection strategy, you may have to part with your money and property.
  • Car accident lawsuits: Your use of cell phones, negligent driving, or failure to strictly adhere to traffic laws may result in car accidents or injuries. Lawsuits from negligent driving award damages exceeding your insurance limits. This puts your assets that are not “protected” at risk. Insurance policies help mitigate this risk, but insurance has inherent limits and risks, which makes asset protection planning an essential component of protecting what you own.
  • Property ownership: An accident at your house, shop, condo, restaurant, office, or rental property may lead to premises liability lawsuits. You may be ordered to pay a large amount in damages. Asset protection planning ensures that you are not punished for mistakes or actions of other people involving your property.

Asset protection has become an integral part of estate planning to ensure the transfer of wealth, businesses, and legacy. Asset protection can be used to protect your heirs and beneficiaries from creditors, problematic spouses, or themselves. Tactical Planning  ensures that you can pass as much property to your children as possible and prevent creditors from acquiring them. On the other hand, the absence of asset protection planning makes your wealth vulnerable to creditors, lawsuits, and possibly bankruptcy.

There are measures permissible by law to protect your savings; however, it is important to follow the right procedures, focus on key aspects, and pay attention to legitimate provisions.

For example, a well-designed asset protection plan may involve the use of multiple LLCs, revocable trusts, debt shields, and secure investments. But just setting up an LLC is not adequate enough to protect your assets. You must be aware of the nuances of making it an efficient instrument to preserve your wealth. Single member LLCs are not the preferred structure of an LLC for liability protection. Additionally, establishing the entities in the right jurisdiction will further the protection depending on favorable state statutes. Be leery of those who claim to be asset protection gurus but lack some of the key aspects required to have a workable plan. If your plan consists of one vehicle, such as a domestic asset protection, be leery. Asset protection planning may be simple or complex, but it is a plan and requires competent design.

About 40% of marriages in the United States end in separation or divorce. Those with high net worth face the risk of losing a significant part of their earned or inherited wealth. A proper asset protection plan is one of the only rock solid barriers that can stand between a nasty divorce and your assets.

Pre-marital/pre-divorce asset protection planning offers a better alternative than the standard pre-nuptial agreement for individuals bringing family and wealth together. A well-designed plan will place assets out of the reach of your spouse without forcing any misgivings between couples. It is important to consider venue, jurisdiction, access, and authority — not just ownership. One of the tools used is off-shore planning. This type of planning uses a unique control design and keeps the ownership of the assets outside of a U.S. Court’s jurisdiction. Off-shore planning is complicated and often requires some additional investment. But it may be worthwhile depending on your holdings and need to protect them. 

It is important to set up these protective measures well before any threat arises.

Well-off and high net-worth individuals are at greater risk of facing frivolous litigations with the goal of forcing you to share your money or property. With proper asset protection planning, it is possible to establish the privacy of ownership through legal provisions. While you own real movable and immovable property, your visible net worth won’t look big enough to attract predatory legal situation. It prevents contingent-fee lawyers from doing public record searches to determine what assets you have available that could be liquidated to satisfy a judgment. This plays a role in demotivating them from taking a case against you.

There are ample legal provisions allowing you to create a number of legal and business entities to park your assets, investments, and income. You may also create an offshore trust to keep your wealth from the jurisdiction of local courts and make it judgment proof.

Attorney Phillip Reed, Designated Member