Asset protection is a proactive legal strategy executed using specific tools to preserve wealth and protect holdings. These strategies have often been executed as a part of an estate plan. The purpose of asset protection is to proactively protect assets (businesses, real estate, financial investments, etc.) from seizure if a lawsuit or claim is ever filed against the individual owner(s).
Another way to think about asset protection is Net Worth Insurance. Professionals that operate their own business or work in industries where litigation occurs on a more frequent basis may consider one of several different asset protection strategies.
How is it legal?
When designed and managed by an experienced attorney, asset protection can be accomplished in a tax-neutral way. The key factors for staying within the legal guidelines are; the right time, having a valid lawful purpose, and working with licensed professionals. The tools and strategies used to protect assets serve a purpose: to manage investments, transfer wealth, increase tax efficiency, or avoid estate taxes.
What is the minimum net worth required?
Clients’ worst mistake is to wait until they have a substantial net worth. The time to think ahead is now.
Successful professionals are often turned away by CPAs, financial advisors, and lawyers because they don’t meet the minimum criteria. When starting as you accumulate wealth, scaling a business or growing professionally can be advantageous.
Think about it this way… A loss is a loss.
Invest the time in a strategy that will help avoid loss, eliminate financial waste and protect what you are building before an issue arises. Proactive measures are much more cost-effective and less stressful than emergency actions needed in a crisis. Consider this, if a significant financial setback would endanger your family, business, or lifestyle, it may be time to consider your asset protection options.
Are asset protection strategies IRS compliant?
As your attorney, I would never recommend a strategy that was not IRS compliant or in any way didn’t adhere to the law. There is no secrecy, hiding assets, or undocumented transactions; everything is recorded and reported.
Improper management could endanger a client’s entire portfolio. This is why the tools and strategies used must be tax neutral. If you have any concerns about the legitimacy or compliance of your existing strategy, schedule a consultation with us immediately.
What types of assets are protected?
Any asset that holds financial value now and in the future. Many people don’t know that you can also protect “future income” that would be generated by a business or property.
Common protected asset types include:
- Real Estate; Commercial Property, Rental Properties
- Personal Property; Residences, Vacation Homes
- Financial Investments; Stocks, Bonds, etc.
- Business Holdings; Equity or Interest in commercial endeavors
- Business Equipment
- Personal Property; Residences, Vacation Homes
- Life Insurance; Cash Value of policies
- Valuables; Antiques, Art, Jewelry, Collectibles
What happens to my assets?
Almost all the asset protection tools still allow direct control of assets by the owner or designated responsible party. For example, clients can outline specific circumstances or life events where a fiduciary or trustee oversees particular assets.
What happens if I wait to put protections in place?
No one has a crystal ball telling us when an unfortunate situation may arise. Waiting until that time creates risk and exposes professionals to a myriad of tax and financial issues.
Net Worth Insurance is a fantastic analogy because it is an excellent example of how similar insurance and asset protection strategies are. More value (lower premium) and more coverage (higher benefit) are available to the buyer of insurance when implemented ahead of time. When implemented at the last minute, protecting assets becomes more costly with more restrictions and tax requirements. Worse yet, people who try to skirt the rules by gifting, moving, or hiding assets can be incriminated for fraud, specifically Fraudulent Conveyance. A charge is categorized as a class 6 felony offense in some jurisdictions!
Isn’t my Revocable Trust a form of asset protection?
The short answer, in many cases, is no. A Revocable Trust is a best practice used by estate planning attorneys to secure and transfer wealth as part of a well-crafted estate planning system. That said, the term Revocable means just that. In the event of a lawsuit, creditor judgment, or hostile litigious situation, the courts can order you to revoke the trust eliminating any protection to force the surrender of assets.
Why can’t my lawyer do this?
To be blunt… It takes time and a network of specialists in asset protection. Suppose your lawyer or financial planner has not proactively discussed asset protection with you, no matter the size of your net worth. In that case, that’s an indicator that these strategies are not part of their toolkit. Moreover, the risk associated with improperly executed asset protection strategies can lead to more financial ruin than the loss itself.
Do I lose control of my assets?
No, most of our tools allow direct control by the client or someone the client wants in control, until and unless it is more efficient or safer for the client to delegate management to a fiduciary like a trustee. You will decide when and if that happens.
Getting Started
The first step is a confidential consultation. We will review your assets and, more importantly, your goals and the risks that could interfere with achieving them. Nothing is required of you for the initial consultation. In my experience, the time we spent upfront understanding where you are financially today and what your vision is for the future is the best foundational work we can do.
How much do asset protection services cost?
Every situation and client is different. After our initial consultation, I will put together a plan and provide cost details to you for review. If additional research or documentation is required before giving you a price, we will address that in the consultation.
