Asset protection is an important part of estate planning. For those who spends a lifetime accruing funds and assets for security or to pass on to children or other heirs it’s a way to safeguard these resources. An individual’s money and assets could be in jeopardy in the event of litigation. Creditors might come after an estate in financial disarray. For those who are facing legal or financial problems, have a large number of assets, or are in high-risk jobs where they may be subject to lawsuits, knowing how to structure ownership of resources in a constructive way is essential for asset protection. For information about different methods of protection, including the use of various types of trusts, see the articles and answers to frequently asked questions in this section.
While some asset protection is wise for everyone, there are three general groups of people who require greater protection than others. The first consists of individuals with abundant wealth. While it is not possible or legal to hide assets from the IRS, setting up offshore accounts can help wealthy people avoid excessive liability should someone attempt to file a frivolous lawsuit against them or their business. Additionally, wealthy individuals who have been involved in a divorce and those who have remarried can generally attest to the benefits of keeping assets secure.
A second group that greatly benefits from asset protection includes business owners. For business owners, having the right type of business and the right insurance policy are essentials in the event of a lawsuit. Business owners can even take financial measures to protect real property from creditors through the use of techniques such as land trusts, corporations, and foreign trusts.
The third faction of individuals who may require asset protection are those anticipating imminent added expenses. Whether it’s a risky business venture or a serious medical condition, there are options available to protect assets and keep creditors away. There are even ways to protect a personal residence in the event of a financial disaster.
As with other legal wealth management endeavors there is no one-size-fits-all option for asset protection. Factors such as the type of asset, overall ownership, and amount of wealth must be considered when forming a protection plan.
The first type of asset protection, and the most commonly used, is an irrevocable trust. This form of asset protection is ideal for those with high amounts of wealth and property. The reason is that the trust removes the property from the person’s estate, reducing estate taxes and preventing creditors from accessing the funds. Other options include a family limited partnership, which allows easier transfer of wealth to other family members while still alive; and some retirement plans.
For high-risk businesses with a large amount of assets, foreign trusts and offshore bank accounts can be very useful. While this income must still be reported to the IRS, the funds are considered outside of the jurisdiction of the courts; should a frivolous lawsuit occur, the funds cannot be accessed by the court or creditors.
For those with less wealth, but still an interest in protecting it, annuities and life insurance accounts can prove useful. The funds are not payable until the death of the particular individual, and until then, the funds are considered tied up in an inaccessible account. Life insurance and annuities are also an excellent means of protecting loved ones who would be unable to work or provide for themselves should the policy holder pass away.
Not every asset protection company is legitimate. In fact, there are many companies that advertise authentic techniques, only to lead individuals with legitimate financial problems down a road of illegal activities. These asset protection scams can result in serious criminal penalties and loss of the invested assets. When deciding upon wealth protection and management options, it is always best to consult with an attorney who is licensed to practice law in your particular state.