Asset protection keeps your property from being taken away if someone wins a lawsuit against you—and it’s not just for the wealthy. Contrary to popular belief, anyone can be sued. Reasoning can stem from personal injury due to car crashes, customer dissatisfaction, medical malpractice or bank foreclosures. If something unexpected happens and you are faced with a lawsuit, the aftermath could bankrupt you and your family. This is why it’s important to protect your assets early on with an asset protection plan.
What Is an Asset Protection Plan?
In the case of a lawsuit, you assume the position of a debtor. This basically means you owe money to another entity, whether that be another individual, company, firm or government. This entity becomes the creditor and will collect the funds they are owed. To safeguard certain assets from creditors, asset protection plans divide your property into two categories—exempt assets and nonexempt assets. With the help of an estate attorney or financial advisor, nonexempt assets, which are usually subject to creditors’ claims, can be repositioned as exempt assets. This will keep them from the creditor’s hands if a lawsuit should arise. Common asset protection techniques include moving funds to a legally binding trust; maximizing IRA contributions or using family limited partnerships.
How Do I Create an Asset Protection Plan?
Do not hesitate to make your asset protection plan. In fact, many states have laws in place that prevent building an asset protection plan only when faced with a lawsuit and creditor. If you wait to hide your assets, you could be held accountable for fraudulent transfers and the transfer can easily be reversed. Therefore, if you have any assets you want protected, you should start the asset protection planning process as quickly as possible.
To begin the process, you should consider your short- and long-term financial goals, as well as your estate planning goals. These two financial intents should eventually be integrated when crafting a asset protection plan. You should create a in-depth financial plan that details your current and future sources of income. Once the financial plan is complete, you can examine your current assets and decide which ones you want to claim as nonexempt. You will also discover your net worth at the conclusion of this process and can use that information when creating your estate plan.
An asset protection plan will allow you to protect yourself and your property from lawsuits and creditors. If the need should arise, you would be in a strengthened position to negotiate your debt, knowing your family and future will still be protected.