What is Asset Protection?
Just like estate planning, asset protection is for everyone, regardless of their exact financial position. Asset protection refers to keeping assets safe from being taken away by a person or entity who instigates (and wins) a lawsuit against an individual. Such lawsuits can range in nature from those related to an act of negligence (such as an auto accident) to foreclosures or other creditor lawsuits.
Of course, no one ever expects to be the target of a lawsuit, but it happens—more often than one might think. Asset protection planning allows assets to be protected from creditors and lawsuit judgements and involves repositioning non-exempt assets so they are out of reach from creditor claims. Like most all forms of insurance (which most people do not expect to need, yet are incredibly grateful to have it when they do), asset protection cannot be implemented when there is already a judgment, creditor or lawsuit on the horizon.
Every state has laws in place which protect creditors from individuals who seeks to transfer assets from their name once they realize they could lose those assets. These are known as fraudulent transfers, and may be punished harshly. Asset protection must begin long before there is actually a need for assets to be protected.
Steps to Take to Protect Assets
In order to put together a comprehensive asset protection plan, an individual must have a clear idea of his or her short and long-term financial goals, as well as his or her estate planning goals. When financial goals are analyzed, an individual will consider current and future sources of income, how close to retirement they are, what level of income retirement will require, and what the individual wants to leave to loved ones upon his or her death.
Some of these questions can be uncomfortable ones. Typically, we tend to shy away from discussions about money or our eventual demise. These are, however, extremely important questions which require careful thought and prudent decisions. Once short and long-term financial goals have been carefully analyzed, current assets must be reviewed to determine which are exempt from creditors.
Those assets which are not exempt must then be “repositioned” to become exempt. A comprehensive financial plan allows this asset positioning in a way which protects any assets an individual intends to acquire in the future to also be protected from creditors and lawsuits. When a financial plan has been compiled, a comprehensive estate plan is the next step. A comprehensive estate plan answers such questions as who will care for a person should they become incapacitated, who will manage their finances, and even who will care for minor children.
Advanced Estate Planning Techniques
Depending on the exact circumstances, advanced estate planning techniques could also be warranted. Advanced estate planning techniques protect assets for future generations, and may even perpetuate family values. These advanced estate planning techniques could include irrevocable trusts and family limited liability companies. Estate taxes can be reduced by gifting assets into an irrevocable trust with a goal of eventually transferring those assets to charities or beneficiaries.
The trust must be irrevocable—that is, it cannot be altered once drawn up—in order to enjoy these tax benefits. Although a revocable living trust also has benefits (such as avoiding probate) the IRS looks at this type of trust as though the person still owns the assets and could therefore take them back from the trust at any time. On the other hand, placing assets in an irrevocable trust is considered a permanent decision—the individual is essentially relinquishing ownership, and another person must act as trustee.
However, since the individual does not technically own the assets, when that individual dies, those assets will not contribute to the overall taxable estate. Those considering an irrevocable trust should not let the permanent nature of such a trust scare them away. It is possible to place assets one is certain they want to transfer to a specific beneficiary in an irrevocable trust while keeping other assets in a revocable trust. Charitable trusts which offer self-perpetuating endowments for many years in the future may also be set up.
Planning Ahead for the Unthinkable
Those who have spent their lives working and accumulating assets—no matter the level of those assets—should be concerned about the possibility of losing those assets in the face of a lawsuit. Accidents happen when you least expect them, and some professions (doctors and real estate investors to name just two) are more exposed to lawsuits than others. There are other, more specialized, types of advanced trusts designed for asset protection, such as:
- SLATs (Spousal Lifetime Access Trusts)—which minimize estate taxes while protecting trust-owned assets against lawsuits, or should a divorce occur. SLATs must be irrevocable to gain these protections, making assets an individual owns no longer accessible.
- Domestic asset protection trusts are designed specifically to protect assets from ex-spouses and from creditors.
- Gifting via a family limited liability company can provide yet another layer of protection for assets owned by the company.
Asset Protection is Not a DIY Plan
Having an experienced Maine asset protection attorney who can guide you through the process of asset protection is crucial to the success of the plan. Asset protection goes far beyond a basic Last Will and Testament or even a Revocable or Irrevocable Trust (although these may be incorporated into asset protection planning). Once financial goals have been integrated with estate planning goals, and assets have been repositioned or positioned to be protected, a comprehensive asset protection plan will be in place, allowing you to be in a better position to negotiate a settlement should a lawsuit arise.
How We Can Help
At Hodgkins Law, not only do we truly care about each and every client’s financial future and the effect their estate plan will have on their loved ones, we work hard to provide the very best services and advice. Our firm is one of the only estate planning firms in the area which provides regular educational seminars, with a goal of educating our clients to a level which allows them to fully understand their estate plan and how that plan will be executed. We want our clients to recognize the many variables and complexities of their particular estate plan and asset protection plan, then feel confident they have made the very best decisions.
At Hodgkins Law, we offer a warm, welcoming, trustworthy environment, plus we understand that estate planning can be a very emotional issue. With a systematic process that is clear-cut and easily followed, we are able to handle all types of estate planning including asset protection, pet planning and MaineCare long-term care planning. If you are in Southern Maine, Cumberland County, Mid-Coast Maine or Brunswick Maine, contact Hodgkins Law today for a comprehensive estate plan.