While most people assume only the uber wealthy need to worry about asset protection, those with less wealth and fewer assets may be at an even greater risk.
For example, if you’re a multi-millionaire then a $50,000 judgment against you might not be that big of a burden. But for a family with a modest income, home, and savings, that could be catastrophic.
Asset protection planning isn’t something you can put off until something bad happens. Like all planning, to be effective, you must have asset protection strategies in place well before something happens. Plus, your asset protection plan isn’t a one-and-done deal: It must be regularly updated to accommodate changes to your family structure and asset profile.
There are numerous planning strategies available for asset protection. Three of the most common strategies include the following:
Purchasing different forms of insurance – homeowners, health, and auto, for example – should always be the first line of defense to protect your assets. If you are ever sued, defending yourself in court can be extremely costly whether or not you’re ultimately found at fault.
Not only is insurance designed to help you pay damages if a lawsuit against you is successful, but the insurance company is also responsible for hiring you a lawyer and paying his or her attorney fees to defend you in court, whether you lose or win.
Insurance policies come with various amounts of coverage so you should seriously consider buying umbrella insurance as well. If your underlying insurance policy maxes out, an “umbrella” policy will help cover any remaining damages and legal expenses. We can evaluate your current policies and advise you about the types and amounts of insurance you should have for maximum asset protection.
2. 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. Depending on your state, the availability and amount of protection offered by such exemptions vary.
For example, 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. With a homestead exemption, paying down your mortgage could protect funds that would otherwise be vulnerable to creditors.
Similarly, federal and state laws classify many retirement plans, such as 401ks and IRAs, as exempt assets, while some states also offer significant, or complete, exemptions for life insurance policies and annuities, as well.
Even though exemptions won’t offer you total protection, they can provide significant shelter for certain assets. Plus, using statutory exemptions are something that can be accomplished without investing anything – all that is required is for you to understand how best to structure your investments to take advantage of these exemptions. We can teach you what kinds and amounts of exemptions are available.
3. Business Entities
Owning a business can be an incredible wealth-generating asset for your family, but it can also be a serious liability. Without the proper protection, your personal assets are extremely vulnerable if your company ever runs into trouble. For example, if your business is currently a sole proprietorship or general partnership, you are personally liable for any debts or lawsuits incurred by your business.
Structuring your business as a limited liability company (LLC) is typically the best way to go for many small businesses. When properly set up and maintained, the LLC creates an impenetrable barrier between your personal assets and your business activities. Creditors, clients, and other potentially litigious individuals can go after assets owned by your company, but not your personal assets.
4. Estate Planning
While each of the asset-protection scenarios shared above are “maybes,” there is one certainty in life – death. It’s coming for all of us. And your death, or an incapacity before it, is the biggest risk to your family’s assets. Planning in advance for what is certain to come is a gift to the people you love the most.
If you’ve been putting it off, now is the time to get it handled so you have peace of mind your loved ones and assets are protected from court and conflict.
Proper estate planning can keep your family out of conflict, out of court, and out of the public eye. If you’re ready to create a comprehensive estate plan, contact us to schedule your Family Wealth Planning Session. Even if you already have a plan in place, we will review it and help you bring it up to date to avoid heartache for your family. Schedule online today.