Asset protection refers to specific methods a person may utilize in order to secure their property from creditors, government seizures, and private lawsuits. Asset protection is a broad field and involves many different areas of law, such as:
- Real estate law;
- Tax law; and
- Insurance law.
Protecting assets requires much planning, as well as a working knowledge of all areas of law involved with property ownership.
Asset protection planning is the process of applying those lawful methods by making it difficult or even impossible for future creditors to seize your assets, or collect judgments against you. Bank accounts are often more easily seized by creditors than a home shared with a spouse; because of this, asset protection planning considers the difference between exempt and nonexempt property.
Some examples of assets that are typically exempt from attack by future creditors include:
- Public and private retirement benefits;
- Household furniture and furnishings;
- Personal items, such as clothing, jewelry, etc.;
- Disability and health benefits;
- Life insurance and annuity policies;
- Social security benefits; and
- Tools of a trade or business, as seizing such property would render the debtor unable to work and therefore unable to pay back their debt.
When significant sums of money are involved, asset protection planning frequently involves setting up a series of trusts or partnerships to hold legal title to your assets. A future creditor may be aware of how difficult it would be to collect on any judgment they may win against you, and decide that the effort would not be worth the outcome. Asset protection is generally only an issue when the asset’s owner is in debt, as a creditor may seek to claim the debtor’s property in order to compensate for the debt or missed payments.
How Can I Protect My Assets? What Are Some Asset Protection Planning Techniques?
Asset protection may be a complicated undertaking due to how many different areas of law are involved. Additionally, the process involves several steps. Whenever property is either purchased or obtained, there are some steps the owner can take to increase security and ensure their ownership in the years to come. Some of these steps include:
- Purchasing Insurance: Some property can be backed by insurance. Examples of such property include but may not be limited to cars and houses. Insurance assists the property’s owner in replacing the property, or recovering some of the property’s cost, if the property is ever lost, damaged, or stolen. Property insurance and title insurance are two common examples of asset protection insurance to consider;
- Utilize a Written Contract: Disputes over who actually owns a piece of property can usually be avoided by utilizing a written contract for sales transactions. Doing so provides a record of the sales and exchange terms for future reference. A written contract could prove to be invaluable evidence should any legal disputes arise later on; and/or
- Avoid Going Into Debt: This may sound obvious, but one of the best ways to avoid having your assets seized in order to repay a debt is to avoid going into debt in the first place. Avoid missing payments on homes, mortgages, cars, and other major purchases so you may avoid having a lien placed on the property. If you find you are becoming unable to make your regular payments, contact your creditor, as they may be willing to work with you.
Many traditional forms of estate planning can be effectively utilized to protect assets. Other asset protection planning techniques include:
- Gifts of Property: Gifts of property remove the assets from your estate, and lessen the risk of attack from creditors. An example of this would be if you give your farm to your child, your creditors will likely not be able to seize the property. This tactic does put the recipient at risk of having the property seized by their own creditors; and
- Business Options: By conducting your business as a corporation, limited liability company, or limited partnership, you are afforded liability protection. This could also provide tax advantages.
It is also important that you understand some basic tax reporting laws, especially those that involve exempt and non exempt property. Categorizing property as exempt as opposed to non exempt may have different asset protection results, but it is imperative to be aware of when that would not actually be legal.
What If I Have a Dispute Over Asset Protection Issues?
The main dispute involving asset protection is the seizure of property by a creditor, or lending institution. A person who has defaulted on credit or loan payments may have their property subject to a lien, which would then be seized by the creditor in place of repayment. This process generally occurs through court proceedings in which the judge authorizes said lein.
Such proceedings can sometimes be avoided through a renegotiation of loan contract terms, and/or an adjustment of repayment methods. Each individual loan arrangement, as well as the willingness of each party to cooperate, is what will ultimately influence the outcome of such situations.
Do I Need an Attorney for Asset Protection?
If you have considerable assets that you would like to protect from future seizure, or if you have any questions regarding exempt vs nonexempt property, you should consult with a skilled and knowledgeable estate attorney. An experienced estate attorney will be aware of all applicable laws, and inform you of your legal options. Additionally, they will be able to represent you in court as needed.