BY MARY E. VANDENACK
A fundamental part of any financial plan includes consideration of protecting your assets from lawsuits and claims. The impact of the recent economy has increased awareness of the need for asset protection planning.
Establish a good basic estate and financial plan
The first step in asset protection planning is to establish a sound estate plan. The correct approach to an estate plan varies widely depending on personal circumstances but the common goals should include:
- ensuring you are taken care of for life
- ensuring spouse, if one, is provided for
- providing for children
- probate avoidance
- tax planning strategies
Review risks and insurance
Identify your key risks. Review your investments. Do you own rental real estate? Do you own a business? Do you have a swimming pool in the back yard? Do you race Porsches on weekends? Do you blog in your spare time and express opinions about people or businesses? After identifying your risks, review your insurance. Often, clients think a risk is covered and find out it is not, only after the claim has arisen. Be familiar with your coverage. Ask about optional coverages and make a conscious decision as to each option. Consider umbrella coverage.
Consider the use of a limited liability company for investment assets such as rental real estate. A limited liability company is a separate entity for liability purposes that can be maintained fairly simply relative to alternate options. A limited liability company is very flexible as to the types of tax treatment that you choose.
Trusts come in all types of different varieties. For gift to minor, or even adult children, a trust provides significant asset protection planning features. When assets are placed in an irrevocable trust for the benefit of the grantor’s children, the assets are removed from the estate of the grantor. The trust can limit the amount available to the beneficiaries, which limits the amount available to claims against the assets of the trust. A privacy trust can be used for purposes of confidentiality. That is, you can establish a trust to own assets rather than listing your name in public records. A privacy trust can also offer some asset protection features. A variety of states now have laws permitting asset protection trusts. Individuals at high risk for claims may consider such a strategy. The laws regarding asset protection trusts are fairly new and in some instances, untested.
Make asset protection planning a part of your financial plan NOW
When something occurs that can result in a claim against you, it is too late to do asset protection planning. If you are at fault in an accident today and you begin transferring assets tomorrow, you are too late. Fraudulent transfer rules prevent making transfers to avoid creditors. In most states, including Nebraska, the exposure for a claim runs back to the day the incident occurred., not to the date the claim was made.
metroMAGAZINE, September 2009