Asset Protection

Asset Protection Techniques

Many people choose to protect their assets through trusts. Learn how well this works and if it is right for you.

There are many different techniques for asset protection, from the most basic to the more complex. Many estate planning techniques are, in some way or another, forms of asset protection.

Insurance

Having insurance can help limit your liability in many situations and is one of the most basic forms of asset protection. This can include homeowner’s insurance that will pay for injuries on your property, as well as medical malpractice insurance for any claims that may be made this way. Unfortunately, though, many people find that they need to employ additional assets along with insurance because insurance will often not pay everything or may not pay at all.

Trusts

While a basic living trust will not protect your assets from creditors, it can help limit the availability of those assets making it slightly more difficult for them to be accessed in lawsuits etc. This is not a very effective means of asset protection against creditors or lawsuits, but it can keep your assets out of probate which can be a way of protecting those assets from ending up in the hands of relatives they weren’t intended for. Offshore trusts are another asset protection technique that can be used. This type of trust can be more effective at protecting assets, but is also usually much more complicated and expensive than any other type of trust.

Retirement Accounts

One basic asset protection technique is investing into protected retirement accounts. There are certain types of retirement accounts that fall under the Employee Retirement Income and Security Act (ERISA), a federal regulation that makes certain retirement plans exempt from liability. The types of accounts that fall under this act vary from state to state. If, however, you have an ERISA-qualified retirement plan, it can be a means of asset protection. This works for many people because the investor no longer owns the money in the account, so it is protected at least until it is paid out to the owner of the account.

Business Entities

There are many asset protection techniques that include setting up your business in a certain way. This can include using family limited partnerships, corporations, or limited liability companies. In many of these asset protection techniques, the purpose of setting a business up this way is to create the business as its own entity. This makes the business itself responsible for any of the actions on the part of the business. While everyone wants to believe that any business they set up will run smoothly with great success and profit, this does not always happen. And, when operating a business as a sole-proprietorship or a simple partnership, the individuals are responsible and held liable for everything that happens in the name of the business (this also means that in a partnership, one partner is held liable for any actions of the other partner under the business name). By setting up your business as a corporation or with limited partnerships, you will lower the liability (and sometimes eliminate it) on the individuals.

Bankruptcy

Bankruptcy is one way to protect assets, but it tends to be the way that has to be used later due to a lack of asset protection. This means that many people who have to file bankruptcy to protect their personal assets from creditors have to do so because they started a business without the proper asset protection techniques in place. They are then considered personally liable and may have to resort to bankruptcy as a means of asset protection. To learn more about this, see the article on (Bankruptcy) here.

Gifts

Another asset protection technique includes gifts that get your property out of your hands (such as giving your child your property and signing over the titles to that child). Something to be aware of when you use this technique, however, is that whatever property you give as a gift is not protected from liability of the person you gave it to.

Whatever types of asset protection techniques you employ, you want to be sure that you are protecting those assets in a legal manner. This means that it is best to utilize asset protection techniques as a preventative measure before anything happens to cause you to potentially lose those assets. If you wait until a lawsuit is brought against you or until creditors try to get your property to use an asset protection technique, you could be committing a fraudulent transfer, which is a criminal action and has legal ramifications.