Protecting Your Assets from Creditors
Estate Planning is not just about planning for the distribution of your assets after your death. A huge part of it is protecting your assets so there's actually something for your loved ones to inherit.
As a wealth preservation attorney, here are some strategies I often discuss with my clients:
1. Cash Value Life Insurance Policies. Not only are life insurance policies a quick way to quickly grow the value of your estate, they are also one of a very limited group of investments that are typically protected against creditor claims. Insurance policies have evolved into sophisticated wealth creation tools with bells and whistles that allow you to access your wealth tax free!
2. Securing Annuities. Another type of investment that is typically protected from creditor claims are annuities. Just like life insurance, the public policy behind allowing them to be protected from creditor claims stems from the notion that they are necessary for to maintain at least a minimum level of financial security to avoid relying on public assistance. Annuities are created when you exchange assets for the right to get payments distributed to you over time as a fixed income stream. What happens to your assets in the meantime? You guessed it, it is growing tax free until distributions are taken. We call that "tax-deffered".
3. Irrevocable Trusts. The name says it all. Once made, it is extremely difficult, if not impossible to amend or terminate an irrevocable trust after it is executed. Unlike a revocable trust where you hold "they keys", with an irrevocable trust, you actually legally give all ownership rights to the assets and the trust - who are held for the benefit of the trust beneficiaries. Hence, a good way to protect your assets from creditors while taking advantage of some tax-shelter benefits.
4. Trusts for Minors. Minors who will inherit assets need to have properly drafted trusts in order to protect their assets from legal action if they are sued in the future. Some very important things to consider when drafting trusts for minor are protections surrounding distributions, marriage, and divorces down the road.
5. Use Limited Liability Companies (LLCs) Correctly. When assets are transferred into your LLC, creditors have limited rights to get their hands on them if you actually treat it as a business. If you have an LLC but treat it as your personal property, you're exposing yourself and your assets to creditors. Stop it!
6. Buy Insurance. Then Buy More! Consider umbrella policies to cover anything that your other insurances won't cover in an event of a judgment against you. If you're a service provider, malpractice insurance is a must. If at all possible, keep buying life insurance policies.
7. Offshore Trusts, Charitable Trusts, Life Insurance Trusts, Etc. If you don't remember anything else remember this: Trusts = privacy. Meaning they do not subject the details of your estate and your assets to be made public in probate court. A will does! Yikes! That allows creditors and cousins to come out of the woodworks and state a claim against your estate.
Not all trusts are created the same and not all Estate Planning attorneys are either. When designing your estate plan, make sure you go with an experienced wealth preservation lawyer who can walk you through the right trust options for you and your family.
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