Why is Asset Protection necessary?

Why is Asset Protection necessary

It is unfortunate that we live in such a litigious society where a person is never more than one mistake away from having everything that he/she has worked for put at risk in a lawsuit. Alternatively, creditors can try to take away assets for various reasons. Given the volatility of business fortunes, people occasionally make mistakes that potentially threaten their long-term financial future.

When your insurance has policy limits or will not cover claims filed against you, it will be your assets that are at risk in a lawsuit. When someone obtains a judgment against you, it will be your assets that they are able to come after to satisfy the judgment. While some categories of assets are off limits to judgment holders, almost everything else is fair game. This means what you have could become what they have with a few strokes of the pen.

If you work in a profession that is prone to lawsuits, this is even more of a risk for you. For example, if you have a professional practice, your malpractice insurance may only provide so much protection. Similarly, if you are starting a business and have to guarantee your loans, you may also be at risk of losing your assets if things do not work out as you hope.

Asset protection means things do not have to be this way, and you do not need to place yourself at the same degree of risk. Through various proactive steps you can take ahead of time, you can build a proverbial fence around most of your assets to keep them out of the hands of creditors and judgment holders. Once a case goes to court, you have little to no control over the outcome and whether everything you have worked for will be threatened. Asset protection is advisable to give you peace of mind.

What does it mean to protect your assets?

Protecting your assets means you preserve them for both your personal use and for the use of your family in later generations. Asset protection means you have taken any of a number of possible steps to either change the form of ownership of the assets or the location of ownership in order to make it difficult for creditors or judgment holders to reach your property. These are the various structures you can establish to either create some separation between you and your assets or to move them into entities that limit your amount of liability. Asset protection is the process of rearranging your financial affairs to put you in a better position to survive a lawsuit than you would have been without such planning.

While there are no guarantees in the practice of law, proper planning can give you much greater peace of mind that your assets will remain secure if ever threatened. When done effectively, asset protection greatly limits the amount of assets that judgment holders can get from you. It is important to remember asset protection steps must be taken within the confines of the law and are completely legal so long as they are done properly.

When protecting your assets, your attorney will scrutinize the laws of various states and offshore jurisdictions to form a strategy for where to hold your assets and who should exercise control over them. Asset protection makes as many of your assets as unreachable as possible. Thus, even if you transfer control of your assets to someone else, you still benefit from them, but no one else can without your consent.

What do you want to protect?

After a lifetime of work, you will hopefully have a number of different assets and properties you will want to keep safe from creditors using asset protection. To devise the strongest possible asset protection strategy, it is helpful to know ahead of time exactly what you want to protect. Then, working with an asset protection attorney, you want to figure out which of these assets are already protected by law and which assets you need to take steps to protect.

The good news is that in many states, one of the most important assets of all—your home—may already receive some degree of protection from creditors due to homestead exemptions. Hopefully, you have other assets in your portfolio besides your home. For example, you may have other investments, including stock market investments and cryptocurrency, that do not fall under any exemption.

Since your bank accounts are one of the first things creditors will go after, you need to find a way to move the money from your bank account into another legal instrument. While liquid assets are among the easiest things for creditors to attach, they are also the easiest to protect. Hard assets, such as real estate, are slightly more difficult to access, but they are still not off limits for creditors, so you must find a way to structure the ownership of these hard assets to keep them protected from lawsuits.

You may also want to protect your retirement accounts or the assets you have saved for that stage in your life. Some states have statutory protections for retirement assets, but when it comes to bankruptcy proceedings, there is a limit on the amount of protected assets. Working with an asset protection attorney can help you devise a strategy to give the highest amount of protection to the most assets possible.

How does Asset Protection work?

How does Asset Protection work

The first step in the asset protection process is finding an attorney who specializes in the field. While you may be tempted to do it yourself to save money, this is an area where you need to do everything right. If your asset protection strategy is based on false assumptions or if someone has made an error, you may be unprotected when you previously thought your assets were safe. You want to find an attorney who understands the complexities that come with creating an asset protection plan and who focuses on asset protection.

When you retain Asset Protection Attorney Blake Harris of Blake Harris Law, he will guide you through the process of creating and using various asset protection tools for safeguarding your wealth. Blake will take the time to listen to you while applying his professional expertise to your situation and answering any questions you may have. Blake has extensive experience with asset protection planning.

Once Blake has spoken with you and understands what you are trying to accomplish, he will recommend an asset protection strategy for you. This may involve moving assets to certain places or creating various trusts to hold some of your assets. In consultation with Blake, you will have to decide what you are comfortable with in terms of domestic and offshore asset protection options.

Asset protection may involve executing a range of legal documents that transfer decision-making power over some of your assets to trustees. It may include steps to create various corporate entities and transferring your assets to these entities because of the protections they provide. Then, you may need to shift other financial assets into certain accounts that are protected from creditors. For example, some states may have absolute protections for retirement accounts as well as other safeguards for other types of annuities that provide you with an income. The most important thing to remember is that the further in advance of a lawsuit that you implement your asset protection plan, the stronger the protection you receive over your assets.

Asset Protection Strategies

Asset protection can be done successfully using a number of different strategies. There is no single overarching way to protect your assets. Instead, you will need to complete many different steps as part of an overall strategy. The first step toward asset protection generally involves purchasing insurance that can provide you with a relatively wide degree of protection. However, the mistake that many people make is to stop after simply purchasing a policy. Insurance does not always protect you to the extent you need and when you require it. As a result, you need other tactics. There are several different moves which we will describe below that can be considered forms of asset protection.

You can create a limited liability corporation for a business or to hold property. Then, your liability extends only to the LLC’s property, and you are not responsible for anything else beyond that. Some people create LLCs specifically to own property. Others create a structure of multiple LLCs to further minimize risk.

Another asset protection strategy is to create a trust. In this case, you transfer property to the trust, which is under the control of a trustee. Trusts can be either onshore or offshore. There is generally a greater degree of protection for offshore trusts. The trust essentially becomes an identity separate from the grantor since it is a new structure with control that is separate and distinct from the person who has beneficial ownership of the assets.

Additionally, you can move some of your assets into accounts that enjoy statutory protections from creditors. For example, retirement accounts are protected to a degree from judgment creditors in some states, but not necessarily from bankruptcy court above a certain amount. Further, some annuities and life insurance policies are protected provided they are for the benefit of the person who is seeking to shield his/her property.

Can a Trust protect assets from a lawsuit?

Can a Trust protect assets from a lawsuit

A trust is a legal instrument, so naturally the answer to this question is it depends. When structured the right way and in the proper time frame, a trust should provide you with asset protection from lawsuits and creditors. Importantly, the trust must be designed in such a way that there is separation between you and the assets. In most cases, this means you need to transfer some degree of control over the assets to a trustee even while you maintain beneficial ownership. If you retain direct power to control your assets, the courts will likely find your trust instrument to be a legal fiction. A successful trust depends on creating some degree of separation between you and the trust assets.

The most important aspect of a trust able to provide legal protection of your assets is that the trust is irrevocable. This does not necessarily mean the trust cannot be undone or modified. Rather, trust assets would be unreachable by creditors since they would not really be taking them from you. When a trust is revocable, creditors can still reach it because you have the direct power to undo the trust and take back the assets. Even if you are the beneficiary of the irrevocable trust, it is the transfer of control of the assets to the trustee that legally separates you from your assets. Exactly how much protection is provided by a trust depends on the law of the jurisdiction where it was established. Some attorneys advise you to establish a trust in certain overseas jurisdictions since it is nearly impossible for creditors to reach assets held there.