The Entrepreneur’s Guide to Keeping Your Estate Intact in the Face of Divorce, Bankruptcy, and Lawsuits

The Importance of Proactive Asset Protection Planning

They say when life gives you lemons, make lemonade. But what if you could plant a lemon tree that bears sweet fruit so you wouldn’t even think twice about eating those lemons straight up? Life’s lemons like bankruptcy, divorce, and, yes, even lawsuits can all leave a sour taste in our mouths. But there are ways to protect your assets against these risks.

In a time when predators, creditors, and other factors can threaten all the hard-earned wealth you’ve built in the blink of an eye, proactive planning can do wonders to safeguard most of your assets from being vulnerable. Let’s talk asset protection for you and your loved ones.

What You Need to Know About Comprehensive Estate Planning

Most people think Estate Planning is all about how their assets will be distributed when they’re gone – but that’s just the tip of the iceberg. A comprehensive Estate Plan offers a wide variety of strategies to protect and secure your well-being and your family’s future. From planning for incapacity or disability to avoiding Probate, and even building generational wealth, Estate Planning can help you ensure your loved ones continue to benefit from everything you’ve worked so hard to achieve. This is why including Asset Protection strategies in your Estate Plan goes a long way to maintaining and preserving your estate.  

If you are a business owner, asset protection planning is especially important.  You need to start thinking about it early on in your business.  Start putting together your team of trusted advisors which should at a minimum include an Estate Planning attorney, a CPA who provides tax strategy advice, and a financial advisor.  While Texas has some of the broadest statutory exempt property provisions in the country, it would be fool-hardy to solely rely on those provisions.

What is Asset Protection?

As the name implies, asset protection involves using various strategies to help safeguard your properties, money, and more against risks that may threaten parts or even your whole estate and cheat your loved ones out of their inheritance.  These proactive measures must be set up in advance, ideally long before any threats arise, to offer the best protection.  Waiting until the lemon appears in your life is usually too late to do any effective and legal asset protection planning.  There are varying levels of asset protection offered by different strategies. 

Now, there are two kinds of asset protection. One is for yourself; the other is for your heirs, and both involve different approaches when it comes to keeping your estate safe from critical junctures in life like bankruptcy, divorce, and judgment.

  • Bankruptcy

We already know that the financial landscape can be volatile, especially for certain industries. Think about what can happen if you experience an unexpected illness or a large-scale economic recession.  An Asset Protection Trust may be used to keep your properties out of your creditor’s reach. While this may require a lot of initial and ongoing requirements, this must be formed well before any potential bankruptcy puts your estate at risk. This type of trust needs to be irrevocable, properly funded, and abide by the requirements of asset protection laws.

While the assets in the Trust may still benefit you, they technically no longer belong to you. You also have a trustee of your choice controlling those assets. These can help keep your money, properties, investments, and whatever else you fund the Trust with out of your creditor’s reach.

  • Divorce

The statistics for marriage longevity these days isn’t great.  Divorce is another risk that could potentially reduce the size of your estate.

Going through a divorce could easily wipe out a large portion of the nest egg you’ve built and threaten the inheritance you plan on leaving your children. 3 tools you can use to protect your assets from a divorce are:

  • Discretionary Trust

This type of Trust can help reduce the risk of your assets being seized in a divorce and allow flexibility in naming your trustees and beneficiaries.  

  • A family LLC or an FLLP

This is a good option for high net-worth individuals to keep assets safe from becoming part of a divorce settlement.  

  • Lifetime Discretionary Trusts

This strategy can be used to protect the financial legacy you leave for your children.  If you want to ensure that your child’s inheritance doesn’t end up in the hands of their ex-spouse you will want to avoid giving them their inheritance outright, using mandatory income trusts or staggered distributions. 

Regardless of how the marriage works out, putting a plan in place to protect the wealth you’ve built ensures that it goes to your intended beneficiaries. 

  • Lawsuits

Lawsuits can end up stripping away personal assets in the blink of an eye.

For example, a business owner might encounter an upset customer or disgruntled employee who decides to sue the company over their issue or a stranger could sue a homeowner simply by sustaining an injury on the sidewalk outside their home.

While insurance is often the first line of defense in these situations, it is often worth exploring other strategies to provide more comprehensive risk protection.  If you are a small business owner who has been operating as a sole proprietor, adding extra measures such as operating your business as an LLC can protect your personal assets from being vulnerable to liabilities or wealth-stripping lawsuits.

What You Need to Know About Risk Management

Risk management is a complex discipline and, more often than not, goes beyond the information available online or what “common sense” dictates. Experienced Estate Planning attorneys and qualified financial advisors can help you navigate potential threats against your estate with a comprehensive asset protection strategy to safeguard your assets.

The Law Office of Antoinette Bone, PLLC provides legal concierge Estate Planning services to create an Estate Plan that helps safeguard the legacy you’ve built and efficiently transfer it to your loved ones. Call our office at (682) 428-3046 today to request an appointment.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax advisor based on the taxpayer’s particular circumstances.

Nothing in this message is intended to provide legal advice.  This message is for educational purposes only.

Please confirm that you understand the consultation is paid and the fee is $350.