You've worked your whole life to protect and provide for your family. You want to make sure they're covered, even after you're gone.
If you've started on an estate plan, you're already on the right path. But your family may not be as protected as you think.
The truth is, the more assets you have, the more you have to lose. A basic estate plan or simple trust is not enough to fend off claims from lawsuits, creditors, divorcing spouses, or the IRS. By the time you have a problem, it may be too late to stop these claims from draining your estate.
At the Estate Planning Law Center, we fill in the blanks where other estate planning services fail. But what is asset protection? And do you really need it?
What Does It Mean to Protect Your Assets?
Asset protection is a legal strategy to prevent other people from taking what belongs to you.
If you have any assets at all, chances are someone in this dog-eat-dog world wants to get their hands on them. Third parties may target you even if you do everything right.
With asset protection, you reduce the number of assets under your own name. That way, even if someone files a claim or lawsuit against you, you stand to lose less.
Why Is Asset Protection Important?
You may think the best way to guard your wealth is to hide your assets. But hidden assets can always be found through an investigation. When you protect your assets instead, they remain safe from claims even if someone finds them.
With asset protection, early timing is crucial. In most cases, it's illegal to transfer your assets after a lawsuit or claim has already been filed against you. The United States considers such actions as crimes. These include concealment (illegally hiding your assets), fraudulent transfer, tax evasion, contempt, and bankruptcy fraud.
In fact, if you try to conceal or transfer your assets after a lawsuit or claim, a court can undo the transfer. Your assets will remain exposed and you may find yourself in even more trouble.
What Types of Claims Can You Protect Against?
From bills to lawsuits, many different claims can eat away at your estate. These include:
- Credit card bills and other creditor actions
- Divorce judgments from estranged spouses
- Predatory lawsuits from third parties
- IRS judgments and government debts
- Medical bills and nursing home expenses
- Employee claims or business-related lawsuits
- Tenant lawsuits from rental properties you may own
- Car or other accidents where you are found to be at fault
- Any other type of liability, settlement, or court judgment against you
These issues can come up unexpectedly. If you fail to protect your assets, you may lose huge amounts of your money or property. You may even have to file for bankruptcy.
How Do You Protect Your Assets?
The right asset protection plan for you depends on your estate planning goals and the types of assets that you own. This could include cash, a primary residence, real estate, cars, art, or ownership interests in a business. Your needs may change if you have a profession that opens you up to potential liability, such as doctors.
Common Asset Protection Strategies
- Using business entities like LLCs to shield your assets
- Increasing your liability or umbrella insurance to cover your estate
- Keeping your assets separated from spouses or other family members
- Dividing your assets between you and your spouse
- Creating separate corporate entities to manage each rental property you own
- Formalizing all informal business partnerships
- Separating all business and personal assets
- Moving long-term savings into protected retirement accounts
- Declaring your home a homestead according to your state's rules
Can a Trust Protect Assets from a Lawsuit?
A trust is a legal arrangement with three parties: the Trustor or the creator of the trust agreement; the Trustee who manages the assets in the trust; and the Beneficiary who enjoys the trust assets.
What Is the Best Trust for Asset Protection?
So you've gone to the trouble to create a trust. Your assets must be safe, right?
Not necessarily. The answer depends on the type of trust and the state laws where you live.
Revocable Versus Irrevocable Trusts
A revocable living trust or family trust is the most common estate planning trust and is often created when doing an estate plan.
A revocable living trust is useful because it allows your loved ones to avoid the hassle of probate after your death. But a revocable living trust won't protect your assets from third party claims. That's because you keep control of your assets during your lifetime. All of your property and money remains in your name as trustee of your trust.
Generally, an irrevocable trust offers better asset protection because your assets no longer belong to you. However, trust requirements change based on different state laws.
As a rule, the less control you have over the assets in your trust, the less they are at risk from lawsuits and creditor claims against you. That said, our asset protection plans keep you in charge while maintaining protection!
Domestic Asset Protection Trusts (DAPT) and Offshore Trusts
A self-settled trust allows you to put your assets into the trust and declare yourself the beneficiary of the trust. Because these types of trusts are not allowed in California, many Californians choose to establish these trusts in other states. These are called domestic asset protection trusts and have specific rules you must follow.
Offshore trusts can provide asset protection as certain foreign jurisdictions don't recognize U.S. court judgments, so creditors who want the assets in an offshore trust must travel to the foreign country where it's located to re-litigate their claim. Because of the expense and hassle involved, most creditors will drop their claims. However, a judge could order you to bring those assets back and you could be sitting in jail until you do! It also raises a red flag for the IRS. Finally, it's very expensive to maintain an offshore trust.
Other Trusts Available in California
Each of these trusts comes with different requirements and protections:
- Qualified Personal Residence Trusts
- Spendthrift Trusts
- Discretionary Trusts
- Domestic Hybrid Asset Protection Trust: This is the asset-protection trust we offer. The Hybrid DAPT is the most important tool in the asset protection industry. Period. It has no equal. A Hybrid DAPT is initally set up as a third party trust -- that is, it benefits your spouse and children or other family members, but not you. Because you're not named as a beneficiary, the trust isn't a self-settled trust, so it avoids the uncertainty associated with regular DAPTs.
The best type of trust for you depends on your location and specific needs. It's important to discuss your situation with an asset protection lawyer who's familiar with all your options, even if you're facing a known threat as there are ways we can help you.
Asset Protection Strategy Pros and Cons
Asset protection is a complicated area of law with a lot at stake. You must be prepared when you and your family's future is on the line. That's why it's vital to talk to someone who can help you best navigate this complex field.
One mistake can leave you completely exposed, despite all your best intentions. The right strategy can protect you and your heirs for life.
Richard Seff is a Woodland Hills and Beverly Hills asset protection lawyer who has helped countless clients in California make the best decisions for themselves, their families, and their businesses. Don't delay. Call us at 818-292-8160 or 310-230-5686 or just send us a message via our Get Help Now box in the left column, and let's get started today.