Asset protection allows individuals and businesses to safeguard their valuable assets through various protection strategies. Creating wealth is not easy, so protecting it should be a top priority.
If you’re facing creditors, lawsuits, or even divorce, these proactive techniques may help to prevent your assets from being targeted. These strategies act as an extra layer of security between creditors and your hard-earned wealth.
This post will discuss how asset protection can help you and the various strategies you can use before a claim occurs.
What is Asset Protection?
In simple terms, asset protection helps you protect your money and possessions from the threat of a potential threatening claim or liability.
This method can help legally protect any accumulating wealth or property from creditor claims who aim to locate and seize these assets.
The proper asset protection plan also reduces the chances of facing IRS tax penalties for tax evasion and tax fraud.
It’s advised that your plan is implemented before any collection attempts are made on you and your assets. It would probably be too late if you’re already facing a lawsuit or suspect that you be at some point in the near future.
Asset protection can be beneficial regardless of an individual’s age, health, or wealth.
An experienced attorney can help you identify which strategy best helps your shield your money without illegal transfers, evading taxes, or committing fraud.
Strategies To Protect Your Assets
It’s a common misconception to believe that you may not benefit from asset protection if you don’t make a certain amount of money.
If you’ve found yourself on the wrong end of a bad divorce or your business is facing a lawsuit from a former employee, your liquid assets and property both are at risk of being seized because of the settlement.
Here are some of the most used asset protection strategies for individuals and businesses.
Corporations, Limited Liability Companies (LLCs), and Partnerships
Owning a corporation, limited partnership, or limited liability corporation LLC can offer protection through liability laws, in which individual owners are not held accountable for the debt of an entity or organization.
These types of business formations reduce the chances of creditor claims or lawsuits affecting the assets of a business.
If business formalities are followed, the goal is to constrain liabilities arising from lawsuits to the assets of the entity. Corporations and LLCs offer the same protection level, but LLCs may be less complicated and not require as much paperwork.
Limited partnerships are one of the most powerful asset protection strategies, but they cannot be used for personal assets. Additionally, any real estate used as a primary or secondary residence cannot be transferred to limited partnerships.
It’s important to consult with a skilled business formation lawyer to discuss which method works best for you.
Asset Protection Trusts (APTs)
An asset protection trust (APT) is a type of trust in which assets are held based on the discretion of the individual investing in the trust also known as the settlor.
It’s often one of the strongest and most used methods of asset protection.
Owners of APTs are considered beneficiaries that hold an equitable interest, any assets included in the trust are not legally entitled to the owner.
One of the drawbacks of some asset protection trusts is that they are irrevocable once the trust has been created since legal ownership power must be relieved.
Domestic APTs are not available in every state, but for states who allow them, it’s a great option for individuals looking for protection of their assets. Domestic trusts can be simple to set up, but laws may vary depending on your state.
Foreign APTs, also known as offshore trusts, are created outside of the United States. These types of trusts typically provide an added layer of privacy protection but can be more expensive to establish.
Transferring the Property Rights
If you’re a real estate investor with a large portfolio, you may own an Airbnb or two. Legally transferring the property you own to a spouse, relative, or trust is one way to protect it from creditor claims and lawsuits.
This method allows you to maintain possession of assets without the risk of them being targeted. However, one of the downfalls of this technique could be the risk of conflicts with family members who now legally own the assets.
How An Asset Protection Lawyer Can Help!
Deciding which asset protection strategy is right for you can depend on various factors. Without the knowledge of how to navigate these complex issues, you could find yourself and your assets in big trouble.
It’s important to be proactive with your asset protection plan, if you’re facing a claim or lawsuit then it’s already too late.
Don’t wait until it’s too late, schedule a consultation today to develop a plan to protect your assets.