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This information was provided by Richard H. Hallstrom, Attorney At Law, for Plan-My-Estate.com.
Asset Protection is the legal means of arranging your assets so that they are protected from the reach of potential creditors.
Asset protection planning is both legal and ethical. However, Asset Protection planning must be done in advance and does not protect you against current creditors.
Some of the most common types of personal assets that need protecting are: rental property, income real estate, small businesses, wholly owned businesses, investments, home equity and money set aside for your children's future.
There are many tools to use in asset protection planning, including:
- Insurance Policy
- Automobile Insurance
- Homeowners Insurance
- Umbrella Insurance Policy
- Irrevocable Trusts
- There are a variety of Irrevocable Trusts that provide excellent Asset Protection. However, choosing the right type of Irrevocable Trust is important. Irrevocable Trusts can privide excelent protection, however, they are much more restrictive that other types of Asset Protection.
- Family Limited Partnership
- This is a popular method of protecting personal assets, but it is not right for everyone. With an FLP, you place you assets in a Limited Partnership comprised of you and other family members. You are set up as the limited partner and the other family member, or a corporation, is set up as the general partner. This effectively protects the assets of the partnership from being seized by a creditor who obtains a judgment against you, the limited partner. However, the assets can be seized if a creditor obtains a judgment against any general partners or the Limited Partnership itself.
- Limited Liability Company (LLC)
- An LLC can be set up with special provisions to provide asset protection. You can be the manager of the LCC with full control over the assets placed in it. In the event of a lawsuit or judgement against you personally, the creditor will unlikely be able to reach your assets that you placed in the LLC. LLCs have become a very popular and beneficial tool for asset protection.
- Corporation
- A Corporation has much the same protections offered by an LLC. The main benefit of a Corporation, just like an LLC, is the liability protection offered to the owners of the LLC.
- Domestic Family Protective Trusts
- Non-Profit Corporation
- Family Business Succession Planning
Asset Protection planning is not just reserved for the very wealthy or for people who expose themselves to risk. Asset Protection should be considered by all people of moderate means who want to protect their hard earned assets from legal and financial creditors.
One significant limitation on Asset Protection are the laws regarding "Fraudulent Transfers". A Fraudulent Transfer (a/k/a "Fraudulent Conveyance") is a transfer which a debtor makes for the purpose of defeating a creditor's collection efforts against the debtor. This typically happens when a debtor attempts to "sell" everything to a spouse, famliy member or business partner for very little money to keep his/her assets out of the hands of the creditors. If the court determines that the transaction is a sham to defeat the creditor, the court will set aside the transaction and make the person holding the assets give them to the creditor. However, your assets will be protected so long as you develop your Asset Protection plan before you run into problems.
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