Asset protection planning is often thought to be a concern only for the ultra-wealthy. However, the reality is that individuals with more modest assets may be at even greater risk of financial devastation if they are not properly protected. For example, a $50,000 judgment might be a minor inconvenience for a multi-millionaire but could spell financial ruin for a family with a modest income, savings, and a home.
Asset protection planning can’t be postponed until a threat emerges. By then, it’s often too late. Like any planning, it must be in place well before an incident occurs and updated regularly to align with changes in assets, family dynamics, and the law.
Here are four key strategies to consider when it comes to safeguarding your family’s most valuable assets:
1. Insurance as a defense: Insurance is the first line of defense when it comes to asset protection. Legal actions can be brought against anyone for any reason, and the costs of defending yourself in court can be astronomical. Your insurance policy should cover damages from successful lawsuits and legal defense costs, regardless of the case’s outcome. Umbrella insurance can cover any remaining damages and legal expenses if your underlying policy maxes out.
2. Utilize statutory exemptions: Another way to protect your family’s assets is by taking full advantage of federal and state laws that make certain types of assets “exempt” from creditor claims and judgments. Many states offer a homestead exemption, which protects a certain amount, or even the full value, of the equity you have in your primary residence from creditors. Similarly, federal and state laws also classify many retirement plans as exempt assets.
3. Choose the right business entity: Owning a business can be a major wealth-generating asset for your family, but it can also be a serious liability. Without the proper protection, your personal assets are at serious risk if your company ever runs into trouble. Sole proprietorships and general partnerships expose personal assets to business liabilities. Limited liability companies (LLCs) and corporations can create a barrier between personal and business assets, protecting personal assets from business liabilities.
4. Implement comprehensive estate planning: There is one certainty in life – death. Your eventual death – or your potential incapacity from a serious accident or illness before you pass away – is the biggest risk to your family’s assets. If you become incapacitated or die without proper estate planning in place, your assets will get stuck in the court system, which could result in those assets passing to family members you would never want to inherit them or, if the assets eventually do pass to your chosen loved ones, they could be seriously depleted or even lost.
To sum up, asset protection planning is not just for the wealthy. It’s a critical step for anyone with assets to safeguard their family’s financial future.
This article is provided by your local estate planning attorney, Corina Colan.
The Law Office of Corina I. Colan / (909) 265-3315 / www.colanlegal.com
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