Here is my most recent newsletter, concerning setting up an asset protection plan. To receive my newsletter in your e-mail, simply provide your address here:
What do you think of when you hear the term “asset protection planning?” Perhaps it conjures up images of extremely wealthy families using off-shore trusts to hide something nefarious. Asset protection, however, can take many forms, and everyone should think through their risks and what they can do to mitigate them.
I am writing to provide you with a quick overview of asset protection strategies. If this sounds like something you might want to consider implementing, give me a call. I would be happy to discuss asset protection strategies that might work for you.
Common Misconceptions About Asset Protection
A very common misconception about asset protection planning is that only wealthy families and people in high-risk professions can benefit from it. In fact, however, most of us engage in at least a few activities with a high amount of financial risk attached. A car accident, foreclosure, job loss, medical crisis, business failure, or an injured tenant can result in a huge monetary judgment against you, decimating your finances.
Moreover, asset protection is probably more important for people with moderate wealth than for people in the top 1%. If your net worth is between $500,000 and $5 million, or if your assets consist mostly of items that would be difficult to liquidate quickly, a judgment of a few hundred thousand dollars against you could be crippling.
What Exactly is Asset Protection Planning?
Asset protection planning is the process of taking property that could be vulnerable to seizure by creditors and minimizing loss by positioning it in a way that will provide a valuable bargaining chip if a liability arises.
As a longtime plaintiff’s trial attorney, I admit to having some mixed emotions about the idea of aggressive asset protection planning. I am strongly in favor of people paying their debts, whether those debts were taken on voluntarily or arose as a result of injuries caused to others through negligence. Asset protection, however, doesn’t necessarily mean avoiding your debts. People who haven’t through their risks and how to properly cover them can be as difficult for creditors to deal with as people who have no assets at all.
Basic, Every Day Asset Protection Planning
In fact, you likely have already implemented some basic asset protection strategies, even if you don’t think of it that way.
For example, the first line of defense against liability is insurance, including homeowner’s, renter’s, automobile, business, professional, malpractice, long-term care, and umbrella policies. If it has been awhile since you reviewed your insurance policies, check them now to determine if your policy limits are in line with current assets and net worth. Make adjustments as appropriate. Then, be sure to review your policies on an annual basis to confirm that the coverage is still adequate and benefits have not been stripped to keep premiums the same.
Contributing to retirement accounts is another type of commonly utilized asset protection strategy. With certain limitations, 401(k)s and IRAs are protected under federal law from creditors in bankruptcy. Maximizing contributions to your 401(k) if you still are working will not only increase your retirement savings, but will also keep the investments away from creditors, predators and lawsuits (the tax exemptions for which they qualify also make retirement accounts a great way to dramatically increase the amount of money you can pass on to future generations).
Sophisticated Asset Protection Planning
If you are a landlord, real estate investor, business owner, work in a high-risk profession, or have accumulated or inherited a significant amount of unprotected property, you may need to consider more sophisticated asset protection planning. While this often does require giving up some or all control and, perhaps, ownership of certain property, depending on the size of the risk you face, the trade off in protection for your family can be worth it.
I would be happy to discuss with you whether sophisticated asset protection planning makes sense in your individual situation. The use of advanced asset protection strategies requires the expertise of a legal advisor who understands all of the applicable laws, specializes in the implementation, and, just as important, can provide ongoing maintenance to ensure your plan keeps pace with your assets and the law.
For Asset Protection To Work, You Must Plan Ahead
To protect your assets, you must plan ahead. Like purchasing insurance, you can’t do it after incurring a debt. Your plan must be in place before a lawsuit arises. And, in some situations, a significant period of time must pass before the asset protection plan becomes effective (up to 10 years in some cases).
Absolutely everyone needs to think through their risks and what can be done to mitigate them. Please call my office for an asset protection planning review. I look forward to hearing from you.