Estate Planning Strategies: Asset Protection Trusts

Protect Your Assets from Bankruptcy, Divorce Settlements, and Lawsuits

Your hard-earned assets are not just a financial matter. They represent your life’s work, your dreams, and your legacy. However, life can throw unexpected curveballs that can threaten everything you’ve worked so hard for. And Estate Planning can be an effective tool for protecting the things that matter most to you, no matter what life throws your way.   Much of Estate Planning has to do with the way a person’s assets will be distributed upon their death – but that’s only the tip of the iceberg. A comprehensive Estate Plan can express your wishes from incapacity planning to Probate avoidance, and also extend protection for your assets in case any less-than-favorable life event should occur.   One of the most important things to understand about asset protection is that not much good can come from trying to protect your assets reactively when surprised by situations like bankruptcy or divorce. The best way to take full advantage of Estate Planning in regards to asset protection is to prepare proactively long before these things ever come to pass — and hopefully many of them won’t. First, let’s cover the two main types of asset protection:   Asset protection for yourself: This is the kind that has to be done long in advance of any proceedings that might threaten your assets, such as bankruptcy, divorce, or judgement. As there are many highly-detailed rules and regulations surrounding this type of asset protection, it’s important to lean on your Estate Planning attorney’s expertise.   Asset protection for your heirs: This can help make sure your beneficiaries get what you intended for them, even if their marriage ends in divorce. This type of asset protection involves setting up Discretionary Lifetime Trusts rather than outright inheritance, staggered distributions, mandatory income trusts, or other less protective forms of inheritance.   There are varying grades of protection offered by different strategies. For example, a Trust that has an independent distribution trustee (the only person empowered to make discretionary distributions from the Trust) provides better protection for the Beneficiary’s inheritance because the trustee can use their judgment to distribute the Trust’s funds in a way that best benefits the Beneficiary. A Trust that allows for ascertainable standards distributions, however, provides the Beneficiary more control over the Trust and could potentially misuse or exhaust the funds too quickly.   If it all seems too complex, the Law Office of Antoinette Bone, PLLC can help you determine the best strategies and tools to protect your heirs and their inheritance.   There are three critical junctures when asset protection can help, along with the Estate Planning strategies we can build together that can set you up for success.   Bankruptcy   Bankruptcy can happen to anyone, even the most responsible person. While it’s entirely possible that you’ll never need asset protection, planning ahead can protect your assets from being seized by creditors and keep your assets out of harm’s way.   You’ve worked hard to get where you are in life, and it’s much better to be ready for whatever life throws your way. Events like an unexpected illness or even a large-scale economic recession could mean you wind up bankrupt. Just a little strategic planning will help you hold onto what you have so you can live well and eventually pass your estate’s assets on to future beneficiaries.   Bankruptcy asset protection strategy: Asset Protection Trusts   Asset Protections Trusts must be formed and funded well in advance of any potential bankruptcy and have numerous initial and ongoing requirements. These Trusts can be funded with various types of assets such as:
  • Cash
  • Real estate
  • Investments
  • Personal belongings
  • and more
  Assets within the Trust aren’t technically in your possession, which means they can stay out of creditors’ reach — so long as the trust is irrevocable, properly funded, and operated in accordance with all the asset protection law’s requirements. Due to the nature of Trusts, the person controlling those assets will be a trustee of your choosing. They are not for everyone, but can be a great fit for the right type of person.   Divorce   Divorce is another unexpected life event that can threaten your assets. One of the last things you want to have happen to the nest egg you’ve saved is for your children to lose it in a divorce. A Discretionary Trust is helpful in preventing a former spouse from taking away what you meant to pass on to your loved ones.   Divorce asset protection strategy: Discretionary Trusts   Discretionary trusts are one of the best ways you can provide robust asset protection for your children. As mentioned earlier, when you create a Trust, the property it holds doesn’t officially belong to the beneficiary. This makes Trusts a great way to protect your assets in a divorce. Furthermore, Discretionary Trusts allow for distribution to the beneficiary but do not mandate any distributions. As a result, they can provide access to assets but reduce (or even eliminate) the risk that your child’s inheritance could be seized by a divorcing spouse.   Instead of outright distributions, there are a number of ways to designate your Trustee and beneficiaries, who may be the same person, and, like with many legal issues, there are some other decisions that need to be made.   Family LLCs or partnerships are another way to keep your assets safe in divorce proceedings. Although Discretionary Trusts are advisable for people across a wide spectrum of financial means, family LLCs or partnership are typically only a good fit for very well-off people.   Judgment   A business owner’s personal assets can be threatened by the lawsuit – things like when an upset customer or employee sues a company. But lawsuits and judgments can threaten your assets, even if you don’t own a business. Injury from something as small as a stranger tripping on the sidewalk outside your house can end up draining the wealth you’ve worked so hard for. Although insurance is often the first line of defense, it is often worth exploring other strategies to comprehensively protect against this risk.   Judgment asset protection strategy: Incorporation   Operating your small business as a limited liability company (commonly referred to as an LLC) can help protect your personal assets from business-related lawsuits. As mentioned above, malpractice and other types of liability insurance can also protect you from damaging suits. Risk management using insurance and business entities is a complex discipline, even for small businesses, so don’t only rely on what you’ve heard online or “common sense.” You owe it to your family to work with a group of qualified professionals, such as us as your Estate Planning attorney and an insurance advisor, to develop a comprehensive asset protection strategy for your business.   These are just a few ways we can optimize your Estate Plan in order to keep your assets protected, but every plan should be tailored to an individual’s exact circumstances.   Asset Protection is a complex area of Estate Planning that is full of potential miscalculation. It’s crucial to obtain qualified advice from an experienced Estate Planning attorney and not solely rely on common knowledge about what’s possible and what isn’t. The Law Office of Antoinette Bone, PLLC can help you protect and secure what matters most. We understand that your assets represent more than just money – they represent your heart and soul. Let us help you keep them safe with right asset protection strategies for your situation. Call us today at (682) 428-3046 to request an appointment.

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