Estate Planning For A Recession

July 10, 2022

Estate planning may seem like a luxury expense, one that should not be top of mind during a recession, but there are few better and more economically efficient ways to protect what you have already earned.

protecting your assets

Everybody has creditors. Your credit card company and mortgage lender are two of the most common examples. While you cannot transfer assets to another entity to shield them from current creditors, you can protect your assets from future creditors by transferring them into a specialized trust or business entity.

With all of the uncertainty currently facing financial markets, it may be especially prudent to protect your assets now. Situations tend to change in a hurry and the unfortunate truth is that unemployment, lawsuits, and catastrophic injuries can happen at any time.

Trusts

Trusts are one of the most common tools in estate planning to shield assets from creditors. Broadly speaking, there are two types of trusts: “revocable” and “irrevocable."

Revocable trusts, like their name suggests, can be revoked or amended at any time during the “trustmaker’s” life. These trusts can create some practical difficulties for creditors by holding ownership of your property outside of your name, but they do not provide any legal asset protection. This is because the trustmaker essentially maintains the ability to control the trust assets at any time by simply revoking the trust.

An irrevocable trust , on the other hand, has terms that cannot be changed absent court approval. This permanently removes ownership of the assets in the trust from the trustmaker. This more permanent transfer of ownership is what protects the assets from creditors in all but a few, limited circumstances.

Despite the permanent loss of ownership, a trustmaker can enjoy both asset protection and continued use of certain assets through an artfully constructed irrevocable trust.

Conclusion

The average cost of establishing a comprehensive estate and asset protection plan is between $2,000-$5,000. This expense pales in comparison to the costs of failing to adequately “wall off” your assets from potential creditors and the legal costs that can arise during contests to a will or the probate process (typical will contest can cost $10,000-$50,000 (2012)). It is therefore a prudent financial decision to shore up your asset protection and estate planning strategies well before you anticipate needing to use them. This is especially true in times of economic uncertainty when risks of all forms are elevated.

What Next?

If you think it might be time to think through your estate plan, you can:

Give us a call at 720-821-7604 to schedule a "Discovery Session" at which we can determine whether our firm would be a good fit for your needs. Or fill out our contact form to have us call you.
Visit our estate planning page to learn more about how proactively thinking through your estate plan can protect you and your family, minimize hassle, lower the chance of family discord, and minimize or eliminate taxes.
Learn more by reading our blog or watching our videos .