Asset Protection

An important part of estate planning is how you manage and protect your assets moving forward into the future. Whether you are concerned about your personal assets or your business there are various tools that exist specifically to assist you in keeping your property safe. Wether it is from tax collectors, accident victims, health-care providers, credit card issuers, business, or other types of creditors. There are many methods and tools to insulate your property. One option that may be sufficient is liability insurance and a Declaration of Homestead. Your first and most important step in asset protection is insurance, more specifically liability insurance.

Liability Insurance

Any asset protection plan worth its salt has liability insurance at the very top of it’s list. At Smart Money Learning we urge our friends and clients to consider either purchasing or increasing umbrella coverage on homeowner policies; purchase or increase liability coverage on business insurance policies. Most often, the cost of the premiums paid for increases in coverage is minimal in comparison to what might be required by a court in the case you are ever sued.

What is a Declaration of Homestead?

In many cases, your home (primary residence) may be your most significant asset. Each state has its own laws which dictate judgment protection afforded to a primary residence through a Declaration of Homestead. Those laws vary significantly from state to state. As an example, a state may offer a complete exception for a primary residence, meaning it’s full value, or a limited exception meaning a set sum such as $150,000. In some special cases, there is an exemption filed under special circumstances for example due to medical bills. It’s not very difficult to file a Declaration of Homestead, there’s a small fee involved, a form, and you need to file it where your deed is recorded. If you should need any help or have questions on how to file a Declaration of Homestead you’re always welcome to give Smart Money Learning a call anytime!

In many cases, liability insurance and a declaration of homestead prove to be sufficient in asset protection. However, in cases of high exposure, you can always consider the formation of a business entity to hold your assets or the creation of an offshore trust. It’s important to know about your options and the different tools available but also important to know that there is no guarantee that an asset protection tool is going to work forever. In reality, it’s almost guaranteed that you will need to adjust, revisit, and change your asset protection methods as your life changes or as new laws come in or old ones change.

Asset protection Laguna Hills

What about Dividing Assets?

Spouses face great potential liabilities and in some situations, it’s a good idea to look into dividing assets between spouses. Potential liability is not uniform; it is very possible that an individual is exposed to greater liabilities throughout their professional lives than their partner. In any such case, dividing personal assets can ensure that both parties remain privy to their entitlements and that assets are distributed equally. This applies only to assets under your name.

Business Entities

Two main types of protection offered by business include protecting your personal assets from business creditors and vice versa. Limited liability company (LLC), corporations, and limited partnerships are often used in protecting an individual's personal assets from any unexpected mishaps that may occur within the business.

Although, these three entities can also grant protection from personal creditors. In the case of a corporation, creditors can obtain shares (often through placing a lien) of their debtors. However, according to most state laws as they pertain to limited partnerships and LLCs, creditors are confined to a single entitlement to a charging order, giving them the right to distributions (as they pertain to the interest). All in all, creditors are limited in their capacities to exercise any rights beyond those held by an assignee, confining them to hold less power than other partners.

Formation of Trust(s)

Trusts are also a useful tool that can come in handy when trying to protect trust assets. What most people overlook when implementing trust to protect their assets is that the trust must be irrevocable and must claim ownership of the property in question. By giving up personal ownership of these assets, you are protecting them from any claims against your name. Trusts must be kept completely clear of your name in any capacity to ensure that any suits will not pull at those assets to fulfill the claim.

Trusts can also be implemented to shield assets from any beneficiaries. When a beneficiary enjoys the privilege of unlimited access to the trust, they also reap the benefit of their creditors having that same level of access. Therefore, one must always pay attention to the terms of their trust.
Asset protection trusts are all useful to some capacity, the following is a list of some of these trusts:

  • Blend Trust
  • Discretionary Trusts
  • Personal Trusts 
  • Self-Settled Trusts
  • Spendthrift Trusts

- Support Trusts

Domestic protective trusts can often leave you unprotected to some claims, but additional precautions can be taken to protect your assets by considering options in foreign jurisdictions. By placing your trusts offshore, you subject your trust to the laws of the jurisdiction in question. Some examples of these foreign jurisdictions include the Cayman Islands, Belize, Liechtenstein, and Bermuda.

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