Asset Protection Overview
Most people have assets; that is, money and both tangible and intangible resources. A person might own a home, car, business or professional practice; have a bank account, some jewelry, maybe a collection of baseball cards or coins, perhaps some furniture. Those fortunate enough to have a portfolio of wealth need a way to protect their assets from risk. Asset protection planning is a process by which a person can organize assets—personal, business and/or professional—and employ legal tools to guard against risk of future creditors. Asset protection techniques are designed to deter potential creditors from taking collection actions by making it difficult or impossible for them to take hold of a person's assets or collect judgments.
There is a very sharp dividing line between legal asset protection planning and criminal actions to defraud legitimate creditors. For this reason it is essential to have an attorney's help through the process. It is also a good idea to integrate asset protection into estate and tax planning; and, like a portfolio, asset protection should be diversified. Don't rely on only one method.
Creditors & Shielding Assets
These days, professionals (doctors, lawyers, accountants, etc.), as well as business and property owners all face increased risk of high jury awards or other excessive legal/business fees. If a person or business is sued, insurance should cover some of the associated losses; asset protection is not a replacement for insurance, but a backstop—a way to shield some wealth should a person face a judgment that isn't fully covered. Remember that the time to address these assets is before a lawsuit; don't wait until a creditor comes knocking as there may be a risk that a transfer will be invalidated or even considered fraudulent.
Who May Need Protection?
To some extent, most people should try to protect their assets to the best of their ability, but there are some people who need more asset protection than others. Below is a list of the most common people who need asset protection:
- The very wealthy: People who are financially well off, and especially those who fall into the wealthiest category, are more at-risk for lawsuits and other methods of acquiring assets. The very wealthy are the most common group of people who need asset protection.
- People with imminent problems: If an individual knows that they will face some legal, financial, or even medical difficulty in the near future, they may need to protect their assets. Examples of this include divorce, bankruptcy or the onset of a serious illness. Anytime it is known that one of these situations in imminent, the asset protection planning process should be started as soon as possible to avoid impeding complications.
- People with high risk jobs (jobs that attract lawsuits): People who work in a profession that has a high liability risk need asset protection - this includes many types of jobs in the medical and pharmaceutical industries, as well as construction, law and finance. Even with insurance, the coverage may not be sufficient, and it is likely wise to take the extra precaution in protecting assets.
Even if a person does not fall into any of the above groups, they should consider some degree of asset protection. Those who own their business probably need some sort of asset protection. Injuries sustained on a business (or personal) property could lead to a lawsuit that could cause them to lose assets; and insurance companies can often find loopholes to avoid paying all (or any) of the amount owed.
How an Attorney Can Help
Asset protection is specific to each individual's unique estate and a qualified attorney and/or financial advisor can help determine exactly how much protection is required, and what techniques are best suited to that particular estate.