4 Essential Strategies for Protecting Your Family’s Assets
You might think that only the super wealthy need to worry about asset protection planning. But the truth is that if you don’t have millions, you may be at even greater risk. For instance, if you are a multi-millionaire, a $50,000 judgment against you might not be that big of a deal. But for a family with a modest income, savings, and home, it could be devastating.
Asset protection planning isn’t something you can put off until something happens; at that point, it’s likely too late to protect your assets. Like all types of planning, to be effective, asset protection strategies must be in place well before something happens. And asset protection isn’t a one-and-done deal; it must updated regularly to include changes to your assets, family dynamics, and the law.
While you should meet with a trusted estate planning expert to determine the strategies best suited for your particular needs and family situation, here are four essential strategies to consider for safeguarding your family’s most valuable assets.
1. Invest In Insurance
Insurance is the first line of defense when it comes to asset protection. Anyone can file a lawsuit against you at any time — and, basically, for any reason. Whether you are ultimately found at fault or not, defending yourself in court can be extremely costly.
The insurance coverage you purchase should pay damages if a lawsuit against you is successful and also cover the cost of hiring a lawyer to defend you in court, whether you win or lose your case. And because a large judgment could exceed your policies’ coverage limits, umbrella insurance may also make sense to help cover any remaining damages and legal expenses.
2. Take Advantage of Statutory Exemptions
Another way to protect your family’s assets is by taking full advantage of federal and state laws that make certain types of assets “exempt” from creditor claims and judgments. Depending on the state, the availability and amount of protection offered by these exemptions can vary.
For example, many states offer a homestead exemption to protect a certain amount — or even the full value — of the equity you have in your primary residence from creditors. Similarly, federal and state laws also classify many retirement plans, such as 401(k)s and IRAs, as exempt assets. Some states offer significant, or complete, exemptions for life insurance policies and annuities, as well.
Even though such exemptions won’t offer total protection, they can provide shelter for certain assets. Using statutory exemptions can be accomplished without investing anything, but you need to understand how best to structure your investments to take advantage of these protections. A legal expert can help to do this right.
3. Use the Right Business Entity
Owning a business can be a major wealth-generating asset, but it can also be a serious liability. Did you know that without the proper protection, your personal assets are at serious risk if your company ever runs into trouble? With sole proprietorships or general partnerships, owners are personally liable for any debts or lawsuits incurred by the business.
However, structuring your business as a limited liability company (LLC) or corporation is typically the best move for most small businesses. When properly set up and maintained, both entities create an impenetrable barrier between your personal assets and your business activities. Creditors, clients, and other potentially litigious individuals can go after assets owned by your company, but not your personal assets.
If you own any kind of business, even just a side gig to earn extra income, you should consider setting up a protective entity to ensure any liabilities incurred by your company will not affect your personal assets.
4. Put the Proper Estate Planning in Place
The scenarios above are mere possibilities, but there is one certainty in life — death. Your eventual death — or potential incapacity from a serious accident or illness before you pass away — is the biggest risk to protecting your family and assets.
If you become incapacitated or die without proper estate planning in place, your assets will get stuck in the court system. Assets or the responsibility to care for your children may lie with family members you would never entrust with that responsibility. Even if any assets eventually do pass to the loved ones you would want inheriting them, those assets could be seriously depleted or even lost due to costly inheritance taxes and court costs.
You work way too hard to leave your family’s assets at risk. Planning in advance for the inevitability of death is one of the greatest gifts you can give those you love most. If you’ve been putting off creating your estate plan — or if you haven’t updated your existing plan recently — now is the time to get it handled.
I Can Help.
If you are trying to decide whether the many benefits of using trust-based estate planning will work for you and your family, set up an appointment with me so we can design a plan that will provide you with the right solution and will work when you need it. You want a plan that will provide the maximum benefit for the people you love most while paying the least amount of taxes possible.
