Asset
Protection Estate Planning
by
Darlynn C. Morgan, Esq.
It's been said that the average American is involved in two lawsuits during their lifetime, and many people are asking these days about asset protection. Asset protection is a part of an integrated estate planning process whereby you organize your assets and affairs so that you protect and control your assets during your life, in the event of an incapacity, and direct the distribution at the time of death. Your integrated estate plan protects your assets from liabilities and litigation, disability, guardianship, probate, and death taxes.
Remember that there are gimmicks out there posing as "asset protection" that do not work or are dangerous. There is no one asset protection planning tool that universally protects all of one's assets, so a plan needs to involve a mix of various techniques. The goal of asset protection planning is that you will weather a legal storm better because you have more bargaining power than if asset protection planning had not been done.
So what are a few of the asset protection tools of the trade?Exempt Assets
Some of your assets will be protected by state law; these are "exempt
assets" and generally include a small homestead exemption, some personal
property items, cemetery lots, social security income, etc. If you have any
degree of even modest wealth, your remaining non-exempt assets have considerable
exposure to creditors.
Insurance Components
In any asset protection plan, the first step to protect your wealth is to be
sure you have adequate liability coverage. An umbrella policy may only a
few hundred dollars per year. But don't make the mistake of thinking you
only need liability insurance in an amount large enough to cover the value
of your estate. You actually need enough liability insurance to cover the
amount of the potential judgment that a court might render against you. Read
the newspapers to see the size of some lawsuits.
Life insurance and long term care insurance are other vehicles that must be
considered to protect your estate.
Corporations & LLCs
A corporation or Limited Liability Company (LLC) is a separate legal entity;
only the assets owned by the company are exposed, or liable for debts owed
by the company. This will shield your personal assets from company liabilities
so long as you use the corporate tool properly. Otherwise a creditor will
be able to "pierce the corporate veil," meaning that you must hold
the organizational meeting, adopt by-laws, follow all formalities, and maintain
the annual corporate minutes (Spend a Few Minutes on your Minutes).
Trusts
Generally, revocable trusts, such as Living Trusts, do not protect the grantor’s
assets from creditors during the grantor’s lifetime. Where you have an
irrevocable trust, a creditor may not be able to access the assets in that
trust.
If you create a trust for another person (your child, or even your spouse)
then the irrevocable trust will not be available to the grantor's creditors.
Some great planning can be done in this area. If you expect to give or receive
an inheritance, there are some easy ways to plan so that the inheritance will
be protected from creditors. For example, you can ensure that the inheritance
that you pass on to your daughter will not go to her ex-spouse in a divorce.
When thinking about your asset protection plan, remember: don't procrastinate!
You have few options once you are concerned about a specific matter.
Darlynn Morgan provides comprehensive estate planning services to individuals, families and business owners. She can be reached at 949 260.1400 or email Darlynn@MorganLawGroup.com.