With news headlines announcing multi-million dollar jury awards in lawsuits, it’s easy to understand why asset protection strategies might be needed.
Individuals may be interested in asset protection planning to protect against:
- unknown future creditors,
- current creditors,
- potential ex-spouses, and
- the IRS and other taxing authorities.
Those protecting their assets from exposure to liabilities should consider taking advantage of a number of tools:
- Purchase appropriate kinds and amounts of liability insurance.
- Make gifts to spouses or family members.
- Create business entities that segregate personal assets from business liabilities.
- Put money into assets that may be wholly or partly exempt from the claims of creditors, including:
- home,
- pensions,
- IRAs,
- life insurance, and
- annuities.
- Create and fund asset protection trusts (APTs).
APTs are a key tool to consider as part of an overall asset protection plan. While such trusts have been available for a relatively short time, they have advantages over other techniques.
APTs are not appropriate for every person who wants to protect assets from creditors, because:
- APTs are not available in every state,
- APTs may be ineffective against certain kinds of creditors, such as the IRS or a potential ex-spouse, and
- APTs require giving up control of the assets transferred.
All asset protection techniques run the risk of violating fraudulent transfer rules. If a person makes transfers of assets to cheat a known creditor, that person has made a fraudulent transfer. If a court finds a person has made a fraudulent transfer, that court has the power to reverse the transfer and make the asset reachable by the transferor’s creditor.
Since the rules surrounding asset protection are state-specific and fact-specific, it is wise to involve professional advisors during the process. The skills of an attorney, CPA, insurance professional and financial professional may all be required to formulate a comprehensive asset protection strategy.