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7 Simple Estate Planning Strategies To Protect Assets

Last update on: Jun 17 2020
estate planning

I’ve never been a big fan of offshore trusts and other exotic estate planning strategies to protect your assets from lawsuits and creditors. They are expensive, you might have to deal with questionable people, and it is not even clear the strategies really work. Some recent cases show that these strategies don’t exactly build a rock-solid fortress.

That doesn’t mean all your assets have to be vulnerable. There are some very easy, inexpensive ways to give your assets a layer of protection without leaving the U.S. or paying high legal fees. Here are the basic asset protection strategies to integrate into your estate planning when you want protection from lawsuits or creditors.


joint ownership.

You have to be careful with this one. Simple joint ownership and joint tenancy with right of survivorship don’t provide protection. They generally allow creditors of either owner to reach that owner’s share of the property. But tenancy in the entirety protects the property from all creditors except the joint creditors of both owners. Tenancy in the entirety usually is available only to married couples. Not all states recognize tenancy in the entirety, and some that do allow it only for some types of assets. When it’s available, it is effective, easy, and inexpensive.


Retirement accounts.

Qualified employer retirement plans are safe from bankruptcy claims under federal law, and the Supreme Court has backed up this provision. In addition, qualified retirement trusts have to contain spendthrift and anti-alienation clauses that should defeat creditors’ claims in nonbankruptcy situations. That’s one reason O.J. Simpson lives well despite the large court judgment against him. There are exceptions, such as tax claims and claims of a spouse or dependent. In addition, some lawyers think a small qualified plan in which only the owner or the owner and spouse participate might not be protected.

IRAs and nonqualified pension plans don’t get protection under federal law. But a number of states have added their own laws that protect IRAs and other retirement accounts from creditors. Your lawyer will have to check state law to see if your assets are protected.


Annuities and life insurance.

Many states protect annuities from creditors. So you might avoid all creditor claims simply by shifting assets to annuities. Life insurance benefits or the cash value of insurance policies also get some protection in many states. You’ll have to check with an attorney to learn exactly how your state treats these items. You can add another layer of protection for your heirs, if you don’t need the option of tapping the cash value of a policy, by putting life insurance in an irrevocable trust for the benefit of your heirs.


Irrevocable trusts.

Don’t count on the standard revocable living trust to protect assets from creditors. But an irrevocable trust can protect assets from both creditors and estate taxes. The key is that you must put the property in trust for someone else’s benefit, and the shift in ownership must be permanent. You cannot get back the property or its income. You also might owe gift taxes when the trust is created. But to be sure that property will be available to your heirs without being depleted by estate taxes or creditor claims, an irrevocable trust is worth considering.


Business operations.

A business or an investment such as rental real estate should be conducted through either a corporation or a limited liability company. There are times when business creditors can get past these entities to your personal assets, especially if you personally guarantee debts or ignore the formality of the entity. Or you might be sued as an officer or director of the company, which means personal liability. Be sure to set up the entity, conduct business under its name, and create separate bank accounts and stationery for the entity.


Homestead exemption.

Many states protect a primary residence from creditors, at least up to a certain value. In states with generous homestead allowances, a common strategy is to use assets that would not be protected from creditors to pay down the mortgage on the protected residence.


Liability insurance.

Don’t fall for the myth that no one will sue if you don’t have any insurance. Someone who believes that there is a legitimate claim will sue. With a good umbrella liability insurance policy, the insurance company will pay for the defense and pay legitimate claims against you up to the policy limit. Often a plaintiff will be satisfied with the limits of the insurance policy. You want liability insurance to be the foundation of your estate planning protection and consider the other techniques for additional protection

You don’t need an expensive foreign trust to protect much of your wealth from creditors and lawsuits. Just remember And you have to put the estate planning strategies  in place before you have a creditor problem or a court will ignore all your maneuvers. And the asset protection is only part of an overall estate and financial plan. Considering asset protection by itself could mean high taxes or other problems that are worse than if you had taken no action at all.


November 2021:
Congress Comes for your Retirement Money
A devastating new law has just been enacted, with serious consequences for anyone holding an IRA, pension, or 401(k). Fortunately, there are still steps you can take to sidestep Congress, starting with this ONE SIMPLE MOVE.

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