One of the main ways to protect your wealth if you are a small business or a professional is to use one or more asset protection techniques to keep your assets away from would-be creditors.
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What is Asset Protection?
A lot of people have heard of asset protection, but not many people truly understand what this term means. In a nutshell, asset protection is a concept that employs a multiple of different legal strategies to protect one’s wealth from future creditors.
What is a future creditor? A creditor could come in a number of forms. It could be as simple as someone who you harmed who wishes to sue you, or it could a bank you borrowed money from. It could also be your spouse (in a divorce situation) or the spouse of a child that you gave money to. Creditors could also be the government seeking to collect taxes.
Asset protection requires careful planning. It does not mean you are attempting to hide or conceal your assets, or place them in an off-shore bank account. Also, you can only protect your assets from future creditors, not present creditors that you are presently aware of!
Who Should Consider Engaging an Estate Planning Lawyer for Help Protecting Their Assets?
If you are interested in strategically, and legally, protecting your assets, it is important that you engage an estate planning attorney as soon as possible to determine what techniques would be most effective in your situation. Not all asset protection strategies will work for every individual or business.
People who commonly benefit from the help of an estate planning lawyer might include:
- A professional (such as a doctor, accountant or lawyer) who owns their own office and has investable assets that could be reached if a judgment were entered against them
- A small business who has substantial physical assets and many employees
- A family looking to leave wealth to a their children and wants to protect that wealth so that it can’t be spent recklessly by their children or reached by their children’s creditors or spouse in the event of divorce
What Are Some Common Asset Protection Strategies?
There are multiple strategies, all legal, that can be used to protect your wealth from future creditors. Here are just a few:
Limit your Jointly Held Accounts. Many people erroneously believe that a jointly held account is a great estate planning tool. But you must be careful. If you have anything more than a few thousand dollars in a joint account (typically used for monthly bills), than you should consider alternatives. If you have a joint account with senior parents, business partners, or even your children – that money is at risk. If the person you own the account with should get into legal trouble, including divorce, have tax issues, or lose a lawsuit, the money in that account is at risk.
Insurance. A personal umbrella insurance policy is a great idea that will cover you in the event you get into some sort of legal trouble. An umbrella policy will cover you in the event of injuries, damage to property, lawsuits or other personal liability situations. You can contact the insurance agent that handles your homeowner’s policy as a first step.
Corporate Protection. Many people go into business as a general partnership without a solid partnership agreement in place. If you are in a general partnership, you are liable for all the actions of your partner. Instead, consider forming a limited liability company (LLC). Not only will the LLC protect you personally from creditors of the business, but it will also protect your business from your personal creditors. However, if you do decide to form a LLC (which we recommend), make sure to have a lawyer draft an operating agreement for you. Even if you are a single member LLC, a strong operating agreement is your first line of defense against creditors.
Trust Planning. If you want to leave money or property to your children, but don’t trust them to manage it well, or are concerned that it could be lost in a divorce, then effective trust planning is the best way to prevent this. But you will need an estate planning lawyer to help you draft these documents.
What’s the Next Step?
If you are in need of Asset Protection planning, the first step is to contact an insurance agent to see about a personal umbrella policy. The second step is to contact estate planning lawyer James Hart to schedule a planning session. Remember that Asset Protection Does NOT work after the fact.