A person’s estate is made up of all of their property, including but not limited to:
- Personal items, such as family heirlooms;
- Bank accounts, including savings accounts;
- Real estate, such as the home in which they lived;
- Stocks and securities; and
- Various other assets.
An estate plan dictates how your property will be managed and distributed when you die. A well-developed estate plan has numerous benefits. An example of this would be how a clearly worded estate plan can minimize your loved one’s tax burden, as well as the need for probate court proceedings.
Estate planning is most commonly associated with wills and trusts. However, sufficient planning can also address other issues, such as:
- How you wish to receive medical treatment if you become incapacitated;
- Your organ donor status;
- Who should make legal and financial decisions on your behalf if you are incapacitated;
- Who will care for your minor children, if you have any;
- Who will take over your business interests; and
- Your funeral arrangements, especially if you have prepaid for services or a burial plot.
Creating an estate plan is important because if you do not create a plan for yourself, your estate will be distributed according to your state’s specific intestate succession laws. These laws may vary considerably from state to state and can sometimes result in property distributions that are counter to what you wanted for your beneficiaries.
What Is Asset Protection And Asset Protection Planning?
Asset protection refers to the specific methods that a person may use 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, including:
- Real estate law;
- Tax law; and
- Insurance law.
Protecting assets requires a considerable amount of planning, as well as a working knowledge of all areas of law that are involved with property ownership.
Asset protection planning is the process of applying those lawful methods. This has the effect of making it difficult or even impossible for future creditors to seize your assets, or collect judgments against you. An example of this would be how bank accounts are generally more easily seized by creditors than a home that is shared with a spouse. Because of this, asset protection planning largely considers the difference between exempt and nonexempt property.
Some of the most common examples of assets that are generally exempt from attack by future creditors include:
- Public and private retirement benefits;
- Household furniture and furnishings;
- Personal items, such as clothing and jewelry;
- Disability and health benefits;
- Life insurance and annuity policies;
- Social security benefits; and
- Tools of a trade or business. This is because seizing such property would render the debtor unable to work, and as such unable to pay back their debt.
When significant sums of money are involved, asset protection planning involves setting up a series of trusts or partnerships in order to hold legal title to your assets. A future creditor may be aware of how difficult it would be to collect on any judgment that they may win against you and could 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 themselves for the debt or missed payments.
What Are Some Common Asset Protection And Planning Techniques?
Asset protection can quickly become a complicated undertaking due to how many different areas of law are involved in the process. Additionally, the process involves several steps. Whenever property is either purchased or obtained, there are some steps that the owner can take in order to increase security, as well as ensure their ownership of the asset in the years to come.
Some of these steps include, but may not be limited to:
- Purchasing Insurance: Some property can be backed by insurance, such as vehicles and houses. Insurance assists the property’s owner in replacing the property, or recovering some of the property’s cost in the event that the property is ever lost, damaged, or stolen. Property insurance and title insurance are two of the most common examples of asset protection insurance to take into consideration;
- Utilize a Written Contract: Disputes associated with who actually owns a piece of property can generally be avoided by utilizing a written contract for all significant sales transactions. Doing so provides a record of the sales and exchange terms for future reference. Additionally, a written contract could prove to be invaluable evidence should any legal disputes arise later on; or
- Avoid Going Into Debt: While this may sound obvious, 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. An example of this would be to avoid missing payments on homes, mortgages, cars, and other major purchases so that you may avoid having a lien placed on the property. If you find that you are becoming unable to make your regular payments, you should contact your creditor as soon as possible, as they may be willing to work with you.
There are many traditional forms of estate planning that can be effectively utilized to protect assets. Some other asset protection planning techniques include:
- Gifts of Property: Gifts of property remove the assets from your estate, and as such lessen the risk of attack from creditors. An example of this would be how if you give your farm to your child, your creditors will likely not be able to seize the property because it no longer belongs to the debtor. However, this tactic does put the recipient at risk of having the property seized by their own creditors; or
- Business Options: By conducting your business as a corporation, limited liability company, or limited partnership, you are afforded a degree of liability protection. This could also provide various tax advantages.
It is imperative to note that there are some basic tax reporting laws that you should be aware of, especially those that involve exempt and nonexempt property. Categorizing property as exempt as opposed to nonexempt may have different asset protection results, but there are some circumstances in which that would not actually be legal. Consulting with an attorney can ensure that you adhere to your state’s specific laws regarding the matter.
What Should I Do If I Have A Dispute Involving Asset Protection And Planning?
One of the most common disputes involving asset protection would be 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 the lien.
These proceedings may be avoided through a renegotiation of loan contract terms or an adjustment of repayment methods. Each individual loan arrangement, as well as the willingness of each party to cooperate in the arrangement, is what will largely influence the outcome of these situations.
Do I Need An Attorney For Help With Asset Protection?
If you have a considerable amount of assets that you would like to protect from future seizure, or if you have any questions about exempt vs. nonexempt property, you should consult with an experienced and local estate attorney.
A local lawyer will be best suited to helping you understand your state’s asset protection laws and will also be able to represent you in court, as needed, should any legal issues arise.