Many people and looking to guard themselves, their businesses, and their families against creditors. Asset protection lawyers, accountants, and firms all advertise their services, but few people and business owners know what these entities do. Should you use one? Decide based on the facts:
Assets mean risk
It is true that professionals like doctors and executives are more likely to be targeted for their assets, but that doesn’t mean others aren’t also at risk. There are many ways that you can lose assets within the bounds of the American legal and financial systems: bankruptcy, contract failure, divorce, negligence lawsuits, and other scenarios mean that even a small, one-person business owner needs to protect assets. As you plan to protect your assets, make sure you know all of your potential risk areas—or work with someone at a reputable asset protection firm who does.
Asset protection involves complicated legal and tax issues
In order to plan and execute the right steps for successful asset protection, you need to understand the laws that apply and how they might protect (or expose) your assets. For the most part state laws are implicated in asset protection, but some federal law is also important. Asset protection firms can help you understand the ins and outs of even complicated legal issues.
The same is true of tax issues and asset protection. You’ll need to assess which tax regulations impact your situation, for example which IRAs and other retirement plans are safest for you. Some rollover amounts from 403(b) and 457(b) retirement plans protect assets, but only in certain scenarios like bankruptcy; a civil judgment would leave you exposed. An expert can help you assess tax issues like whether your plan is subject to ERISA and other regulations based on your specific facts.
Asset protection varies greatly from state to state
Many states have homestead protection, but not all of them do. Homestead protection also varies from place to place. Similarly, insurance payouts and annuities are dealt with in drastically different ways from state to state. How much protection you actually have depends on your location and specific facts. This is the type of issue asset protection firms focus on because it is a complex area that depends on expert knowledge.
Trusts can only protect assets when they are exactly right
Just putting your assets into trusts isn’t enough to ensure that your assets are protected. Some states specifically allow trusts for asset protection purposes, and others are hostile. Foreign trusts are a common fallback but the expense they incur may not be necessary; this is something an asset protection firm will specialize in. They also know the various requirements for asset protection trusts such as the inclusion of a spendthrift clause and the need for the trust to be irrevocable.
Some asset protection plans demand rigorous, long-term business moves
Sometimes businesses must strip equity or move around money in receivables to adequately protect their assets. These kinds of maneuvers are complex and demand long-term planning. This is another area that asset protection firms focus on; in particular a firm can advise you about timing and how to prevent various steps in your asset protection planning plan from being seen as fraudulent transfers.
Poking holes in popular theories
Many people believe that insurance alone will adequately protect their assets, but this is rarely the case. In addition, a common “low-tech” method for asset protection is to put assets into the name of a spouse. However, this can be ineffective or even counterproductive—especially given that divorce is a major reason many people need asset protection.
The bottom line
Don’t try and go it alone. Research your situation and talk to experts to find out what will work best for you and your finances. And don’t wait until there’s a problem to do these things. G. Kent Mangelson, CFP, a senior advisor with the American Society for Asset Protection, comments: “Our entire mission is to protect assets. We provide the education and tools needed to protect people and businesses from lawsuits, to save thousands in taxes, and to pass assets to heirs tax-free.” Asset protection firms that are staffed by actual experts in this area are a great resource because they have pooled knowledge gathered over time by tax and legal professionals who focus their practice on asset protection.