Asset Protection Planning in a Litigious World

Without an asset protection plan, your
wealth could be at risk. Explore proven legal
strategies to keep your assets secure.

 

By Kristin J. Hall, Esq.

Protecting your wealth from creditors can be just as important as growing it. Without a proper asset protection plan, your hard-earned assets may be vulnerable to potential risks from lawsuits and creditor claims. Whether you are a business owner, a professional concerned about liability exposure, or a typical homeowner looking to safeguard your property, consider incorporating the following key asset protection strategies into your estate plan.

Insurance as a First Line of Defense

Maintaining adequate liability insurance is a fundamental component of any asset protection plan. Beyond basic homeowners and auto insurance, there are umbrella insurance policies, which cover personal liability exposures, professional liability policies, which protect against malpractice or negligence claims, and business liability policies, which shield business assets and members from business-related claims.

The Power of LLCs and Other Business Entities

If you own a business, rental property, or other real estate investment, structuring your ownership within a limited liability company (LLC) or other business entity (such as a corporation or limited partnership) can provide a strong layer of protection for your personal assets by keeping them separate from the business liabilities. If an LLC is sued, for example, only the assets owned by the LLC are at risk, not the owner’s personal assets. Also, generally, if a judgment is obtained against an LLC member personally, creditors cannot seize the LLC assets, and instead their remedy is limited to a charging order (a lien against distributions, if any are made).

Preserving Assets in Irrevocable Trusts

An irrevocable trust provides creditor protection by legally holding ownership of assets out of your estate, so that you may have some access to and benefit from the assets, but you do not have direct control over the assets. This lack of control prevents creditors from reaching the assets to satisfy your personal debts. Setting up an irrevocable trust may not protect against existing creditors, due to fraudulent transfer laws. However, with careful planning, irrevocable trusts can shield assets from future creditor claims, marital property division in the event of a divorce, and federal and state estate tax in both the donor’s and the beneficiaries’ estates.

Additional Federal and State Law Protections

Many states have homestead exemption laws that protect a portion of your primary residence against creditor claims; Florida and Texas are known as having the most generous homestead exemption laws. Many states also allow married couples to own property as tenants by the entirety, which is a form of ownership that shields the property from claims against only one spouse. Further, state laws provide spousal waiver protection against marital property claims that can be addressed in a premarital agreement. Finally, federal and state laws protect retirement accounts, like IRAs and 401(k)s, from most creditor claims.

If you would like to discuss a tailored asset protection strategy as part of your estate plan, please contact Kristie Hall at khall@sgrwlaw.com.