Asset Protection

3 Asset Protection Tips You Can Use Now

A common misconception is that only wealthy families and people in high risk professions need to put together an asset protection plan. But in reality, anyone can be sued. A car accident, foreclosure, unpaid medical bills, or an injured tenant can result in a monetary judgment that will decimate your finances. Below are three tips that you can use right now to protect your assets from creditors, predators and lawsuits.

What Exactly is Asset Protection Planning?

Before getting to the tips, you need to understand what asset protection planning is all about. In basic terms, asset protection planning is the use of legal structures and strategies to transform property that creditors might snatch away into property that is completely, or, at the very least, partially, protected.

Unfortunately, this type of planning cannot be done as a quick fix for your existing legal problems. Instead, you must put an asset protection plan in place before a lawsuit is imminent, let alone filed at the courthouse. So, now is the time to consider implementing one or more of these tips.

Now, on to the three tips.

Asset Protection Tip #1 – Load Up on Liability Insurance

The first line of defense against liability is insurance, including homeowner’s, automobile, business, professional, malpractice, long-term care and umbrella policies. Liability insurance not only provides a means to pay money damages, it often also includes payment of all or part of the legal fees associated with a lawsuit. If you do not have an umbrella policy, then now is the time to get one since it is relatively inexpensive when compared with more advanced ways to protect your assets. You should also check all of your current insurance policies to determine if your policy limits are in line with your net worth and make adjustments as appropriate. You should then review all of your policies on an annual basis to confirm that the coverage is still adequate and benefits have not been stripped to keep premiums the same.

Asset Protection Tip #2 – Maximize Contributions to Your 401(k) or IRA

Under federal law, tax-favored retirement accounts, including 401(k)s and IRAs (but excluding inherited IRAs) are protected from creditors in bankruptcy (with certain limitations). Therefore, maximizing contributions to your company’s 401(k) plan is not only a smart way to increase your retirement savings, but it will also keep the investments away from creditors, predators and lawsuits. On the other hand, if your company does not offer a 401(k) plan, then start investing in an IRA for the same reasons.

Asset Protection Tip #3 – Move Rental or Investment Real Estate into an LLC

If you are a landlord or a real estate flipper or investor, then aside from having good liability insurance, moving your real estate into a limited liability company (LLC) can be a great way to help protect your assets from creditors, predators and lawsuits.

There are two types of liability that you should be concerned about with rental or investment property: (1) inside liability (where the rental or investment property is the source of the liability, like a slip and fall on the property, and the creditor wants to seize an LLC owner’s personal assets) and (2) outside liability (where the creditor of an LLC owner wants to seize LLC assets to satisfy the owner’s debt).

An LLC will limit your inside liability related to the real estate, such as a slip and fall accident on the front stairs of the property or a fire caused by faulty wiring located at the property, to the value of the property. In addition, in many states the outside creditor of the member of an LLC cannot get their hands on the member’s ownership interest in the company (in some states this will only work for multi-member LLCs, while in others it will also work for a single member LLC). This type of outside creditor protection is often referred to as “charging order” protection. This means that a creditor will have to look to your liability insurance and any unprotected assets to collect on their claim.

If you are interested in asset protection planning for your investment real estate using an LLC, then you will need to work with an attorney who understands the LLC laws of the state where your property is located to insure that your LLC will protect you from both inside and outside liability. To learn more, Call or contact us for an appointment.

Wills vs. Trusts: A Quick & Simple Reference Guide

Confused about the differences between wills and trusts? If so, you’re not alone. While it’s always wise to contact experts like us, it’s also important to understand the basics. Here’s a quick and simple reference guide:

What Revocable Living Trusts Can Do – That Wills Can’t

Avoid a conservatorship and guardianship. A revocable living trust allows you to authorize your spouse, partner, child, or other trusted person to manage your assets should you become incapacitated and unable to manage your own affairs. Wills only become effective when you die, so they are useless in avoiding conservatorship and guardianship proceedings during your life.
Bypass probate. Property in a revocable living trust does not pass through probate. Property that passes using a will guarantees the probate process, designed to wrap up a person’s affairs after satisfying outstanding debts, is public and can be costly and time consuming – sometimes taking years to resolve.
Maintain privacy after death. Wills are public documents; trusts are not. Anyone, including nosey neighbors, predators, and unscrupulous “charities” can discover the details of your estate if you have a will. Trusts allow you to maintain your family’s privacy after death.
Protect you from court challenges. Although court challenges to wills and trusts occur, attacking a trust is generally much harder than attacking a will because trust provisions are not made public.

What Wills Can Do – That Revocable Living Trusts Can’t

Name guardians for children. Only a will – not a living trust or any other type of document – can be used to name guardians to care for minor children.
Specify an executor or personal representative. Wills allow you to name an executor or personal representative – someone who will take responsibility to wrap up your estate after you die. This typically involves working with the probate court, protecting assets, paying your debts, and distributing what remains to beneficiaries. But, if there are no assets in your probate estate (because you have a fully funded revocable trust), this feature is not necessarily useful.

What Both Wills & Trusts Can Do:

Allow revisions to your document. Both wills and trusts can be revised whenever your intentions or circumstances change so long as you have the legal capacity to execute them.
WARNING: There is such as a thing as irrevocable trusts, which cannot be changed without legal action.
Name beneficiaries. Both wills and trusts are vehicles which allow you to name beneficiaries for your assets.
Wills simply describe assets and proclaim who gets what. Only assets in your individual name will be controlled by a will.
While trusts act similarly, you must go one step further and “transfer” the property into the trust – commonly referred to as “funding.” Only assets in the name of your trust will be controlled by your trust.
Provide asset protection. Trusts, and less commonly, wills, are crafted to include protective sub-trusts which allow your beneficiaries access but keep the assets from being seized by their creditors such as divorcing spouses, car accident litigants, bankruptcy trustee, and business failure.

While some of the differences between wills and trusts are subtle; others are not. Together, we’ll take a look at your goals as well as your financial and family situation and design an estate plan tailored to your needs. Call or contact us today and let’s get started.

How You Can Build an Estate Plan That Includes Asset Protection

Much of estate planning has to do with the way a person’s assets will be distributed upon their death. But that’s only the tip of the iceberg. From smart incapacity planning to diligent probate avoidance, there is a lot that goes into crafting a comprehensive estate plan. One important factor to consider is asset protection.

One of the most important things to understand about asset protection is that not much good can come from trying to protect your assets reactively when surprised by situations like bankruptcy or divorce. The best way to take full advantage of estate planning in regards to asset protection is to prepare proactively long before these things ever come to pass — and hopefully many of them won’t. First, let’s cover the two main types of asset protection:

Asset protection for yourself:

This is the kind that has to be done long in advance of any proceedings that might threaten your assets, such as bankruptcy, divorce, or judgement. As there are many highly-detailed rules and regulations surrounding this type of asset protection, it’s important to lean on your estate planning attorney’s expertise.

Asset protection for your heirs:

This type of asset protection involves setting up discretionary lifetime trusts rather than outright inheritance, staggered distributions, mandatory income trusts, or other less protective forms of inheritance. There are varying grades of protection offered by different strategies. For example, a trust that has an independent distribution trustee who is the only person empowered to make discretionary distributions offers much better protection than a trust that allows for so-called ascertainable standards distributions. Don’t worry about the complexity – we are here to help you best protect your heirs and their inheritance.

This complex area of estate planning is full of potential miscalculation, so it’s crucial to obtain qualified advice and not solely rely on common knowledge about what’s possible and what isn’t. But as a general outline, let’s take a look at three critical junctures when asset protection can help, along with the estate planning strategies we can build together that can set you up for success.

Bankruptcy

It’s entirely possible that you’ll never need asset protection, but it’s much better to be ready for whatever life throws your way. You’ve worked hard to get where you are in life, and just a little strategic planning will help you hold onto what you have so you can live well and eventually pass your estate’s assets on to future beneficiaries. But experiencing an unexpected illness or even a large-scale economic recession could mean you wind up bankrupt.

Bankruptcy asset protection strategy: Asset protection trusts

Asset protection trusts hold on to more than just liquid cash. You can fund this type of trust with real estate, investments, personal belongings, and more. Due to the nature of trusts, the person controlling those assets will be a trustee of your choosing. Now that the assets within the trust aren’t technically in your possession, they can stay out of creditors’ reach — so long as the trust is irrevocable, properly funded, and operated in accordance with all the asset protection law’s requirements. In fact, asset protections trusts must be formed and funded well in advance of any potential bankruptcy and have numerous initial and ongoing requirements. They are not for everyone, but can be a great fit for the right type of person.

Divorce

One of the last things you want to have happen to the nest egg you’ve saved is for your children to lose it in a divorce. In order to make sure your beneficiaries get the parts of your estate that you want to pass onto them — regardless of how their marriage develops — is a discretionary trust.

Divorce asset protection strategy: Discretionary trusts

When you create a trust, the property it holds doesn’t officially belong to the beneficiary, making trusts a great way to protect your assets in a divorce. Discretionary trusts allow for distribution to the beneficiary but do not mandate any distributions. As a result, they can provide access to assets but reduce (or even eliminate) the risk that your child’s inheritance could be seized by a divorcing spouse. There are a number of ways to designate your trustee and beneficiaries, who may be the same person, and, like with many legal issues, there are some other decisions that need to be made. Discretionary trusts, rather than outright distributions, are one of the best ways you can provide robust asset protection for your children.

Family LLCs or partnerships are another way to keep your assets safe in divorce proceedings. Although discretionary trusts are advisable for people across a wide spectrum of financial means, family LLCs or partnership are typically only a good fit for very well-off people.

Judgment

When an upset customer or employee sues a company, the business owner’s personal assets can be threatened by the lawsuit. Even for non-business owners, injury from something as small as a stranger tripping on the sidewalk outside your house can end up draining the wealth you’ve worked so hard for. Although insurance is often the first line of defense, it is often worth exploring other strategies to comprehensively protect against this risk.

Judgment asset protection strategy: Incorporation

Operating your small business as a limited liability company (commonly referred to as an LLC) can help protect your personal assets from business-related lawsuits. As mentioned above, malpractice and other types of liability insurance can also protect you from damaging suits. Risk management using insurance and business entities is a complex discipline, even for small businesses, so don’t only rely on what you’ve heard online or “common sense.” You owe it to your family to work with a group of qualified professionals, such as us as your estate planning attorney and an insurance advisor, to develop a comprehensive asset protection strategy for your business.

These are just a few ways we can optimize your estate plan in order to keep your assets protected, but every plan should be tailored to an individual’s exact circumstances. Give us a call or contact us today to discuss your estate plan’s asset protection strategies.

Michael Jackson’s Estate Pulled Into Seemingly Endless Probate Court Battles

Michael Jackson, the “King of Pop,” had always been a controversial superstar. Over the years, he became the father of three children, Prince Michael Jackson II, Paris-Michael Katherine Jackson, and Michael Joseph Jackson, Jr.

While Jackson created a trust to care for his children and other family and friends, he never actually funded it. The result? Embarrassing and seemingly endless probate court battles between family members, the executors, and the IRS.

4 Essential Purposes of a Trust

A trust is a fiduciary arrangement which allows a third party (known as a trustee) to hold assets on behalf of beneficiaries. There are four primary benefits of trusts:

Avoiding probate. Funded trusts are not subject to probate. However, unfunded or underfunded trusts, just like wills, generally must go through probate.

Maintaining privacy. Probate is a matter of public record. However, since trusts aren’t subject to probate, privacy is maintained.

Mitigating the chance of litigation. Since trusts are not subject to the probate process, they are not a matter of public record. Therefore, fewer people know estate plan details – mitigating the chance of litigation.

Providing asset protection. Assets passed to loved ones in trust can be drafted to provide legal protection so assets cannot be easily seized by predators and creditors.

While these are arguably the most essential purposes, trusts can also affect what you pay in estate taxes as well.

Sadly, Jackson could not take advantage of any of these benefits. Although he created a “pour-over” will, which was intended to put his assets into a trust after his death, the “pour-over” will, like any other will, still had to be probated.

The probate, along with naming his attorney and a music executive as his executors (instead of family members), fueled a fire that could have been avoided with more mindful planning. Given the size of Jackson’s estate, it’s no surprise that everyone wanted a piece of the pie.

Don’t Burden Your Family!

Losing a loved one is difficult enough without having to endure legal battles afterward. In Jackson’s situation, a proper estate plan could have reduced litigation and legal fees, and helped provide privacy for his survivors. His situation, although it deals with hundreds of millions of dollars, applies to anyone who has assets worth protecting. In other words, it likely applies to everyone!

There are many types of trusts and estate planning tools available to ensure that you don’t burden your family after your death. We’ll show you how to best provide for and protect your loved ones by creating the type of estate plan which is tailored to fit your needs.

Financial Smarts Peak At 50, Here’s How to Protect Your Older Self

A recent study conducted by Texas Tech University concluded that the ability to make smart financial decisions peaks at age 50. This decline was observed in both men and women, making both sexes equally vulnerable to financial fraud as they age.

4 Tips for Protecting Your Finances From Scams, Shams and Schemes as You Age

In “4 Ways to Protect Your Retirement Money From Scammers (and Your Future Self)” (Time.com), Liz Weston points out that fraud victims age 65 and older lost an average of $30,000, and one in ten lost more than $100,000.

Now that I have your attention, here are the four tips that Ms. Weston offers for protecting your finances as you age or those of you with an elderly parent or other relative:

Make Investing Simpler. This tip emphasizes consolidation of similar accounts (such as combining multiple IRA accounts into a single account), replacing individual stocks and bonds with mutual funds or exchanged-traded funds (in general funds will require less attention), and keep two credit cards (one for everyday use and the other for automatic bill payments).

Assemble Defenders. This tip emphasizes choosing the right person – someone who is money-savvy, trustworthy, and ready to act in your best interest – to step in and manage your finances when you are not able. This is accomplished through naming an agent to act on your behalf in financial matters in a legal document called a Power of Attorney. While your spouse may be your first choice as agent, be sure to choose a younger alternate in case your spouse also becomes impaired.

Open Up Your Finances. This tip emphasizes sharing your financial information with your agent so that he or she will be able to notice when things go awry. For example, you can set up email or text alerts with your financial institutions that notify both you and your agent when unusually large transactions take place. You should also give your doctor and financial advisor permission to contact your agent if they become concerned about your cognitive abilities.

Design a Money Blueprint. This tip emphasizes putting together an “investment policy statement” (IPS) which spells out your financial goals over time, what types of investments you will hold, and how much of your portfolio should be allocated to safe and riskier assets. An IPS will not only help you keep your investments on track, but it will also help you resist sales pitches that fall outside of your plan.

Of course, a comprehensive estate plan is the ultimate way to protect you, your family and your finances as you age. Please contact our office if you are interested in learning more about estate planning or if you have an estate plan that has not been updated in the past few years.