Asset protection can be an effective way to protect yourself and your assets from legal liability or creditors. However, it’s important to understand when it will work and how laws in your state might affect you. Learn more here about what asset protection is and how it may help you secure your family’s future.
How Asset Protection Works.
Asset protection refers to steps that an individual or business takes to protect their assets from creditors or lawsuits. Generally, it works by putting certain financial and legal barriers in place that your creditors may not be able to penetrate. These could include, for example, placing certain funds and properties into trusts. It can also include getting adequate insurance policies. Some people use offshore accounts which would make it difficult for creditors to access. (However, there are dozens of court cases defeating this sort of trust. So, we don’t recommend using them.)
Avoid Committing a Fraudulent Transfer.
In some cases, asset protection won’t be effective if you convey property interests with fraudulent intent or purpose. This is known as a “fraudulent transfer,” and it can void protections that legal protection strategies would otherwise provide. To make sure your assets you are adequately protecting your assets during transfers, consult an attorney familiar with the laws in your jurisdiction.
One key criteria to keep in mind when deciding if asset protection will work is to make sure your transfers are made in good faith and not fraudulent. Fraudulent transfers typically involve an individual or business attempting to evade paying their creditors. This could include transferring assets prior to debts becoming due. Another mistake is to fail to record documentation of the transfer. Also, do not substantially undervalue the asset being transferred. Transferring assets out of your name only works within the boundaries of the law. So it’s important to consult with a legal professional before attempting any of these strategies.
Avoid Commingling Assets.
In general, asset protection strategies work best if you keep your assets separate and distinct. This means avoiding the commingling of personal and business funds, or any other activities that could blur the lines of ownership. Keeping a paper trail of all transactions and maintaining accurate records can help protect you from potential legal issues. Remember that some transfers may be flagged as gifts in certain states, which could reduce your asset protection options down the road.
Avoid Asset Protection Trusts.
An “Asset Protection Trust” almost always refers to a self-settled spendthrift trust. These are trusts that you create for your own benefit. The idea is that you get to use the assets in the trust. But if you get sued, your creditors can’t get the assets. Sounds pretty amazing, right?
The problem is that only a minority of states permit them to be utilized as a protective measure.
Get Professional Advice to Help You Choose the Right Strategy.
Asset protection is a complex legal process that requires expert knowledge to ensure it is done correctly. It’s important to understand the laws of each state, as well as how federal and local laws apply in the particular situation. Working with an experienced asset protection attorney can help you make sure you choose the right strategy that will best protect your income and property.
We have helped lots of other people successfully protect their net worth. Give us a call to see if we can help you. Our number is 602-443-4888. We’re here to help.