What is Asset Protection Planning?
What can you do to protect your assets from any lawsuit? You can do this by undergoing asset protection planning. Asset protection planning involves taking non-exempt assets, assets that are subject to creditor's claims, and repositioning them as assets that cannot be affected by a creditor's claims. These assets are called exempt assets.
When Should You Begin Asset Protection Planning?
You can't start protecting your assets when you are on the radar of a judgment creditor. Why? Because your efforts would be useless. Each state has laws to protect judgment creditors from people who want to hinder collection efforts. Courts can easily see through these efforts to hide assets and reverse the transfers. The assets will then be used to pay the creditor.
Asset Protection planning should occur before any lawsuit is initiated. To have an effective and comprehensive asset protection plan, you need to include two important goals:
• Estate planning goals, and
• Your long-term and short time financial goals
How Your Financial Goals Play a Role in Asset Protection
When you determine what your long term and short term financial goals are, you will discover more about your current and future income sources. You will also learn the amount of money you need to retire, and how much money will be left to give to heirs after your death.
Making these determinations will help you devise a more detailed financial plan.
Once you determine your financial goals and create a financial plan, it's important that you review the assets you currently have to figure out if the assets are exempt from creditors. If your assets are not exempt, you will need to decide how to position them so that they are exempt. With good financial planning, you can plan for asset positioning and protect yourself from potential creditors.
Estate Planning Goals and Asset Protection
Because you now have a financial plan, you have a good understanding of your actual net worth and an estimation of how much wealth you may acquire in the future. Using this information, you can create an encompassing estate plan.
Your estate plan should address the following issues:
• Who is responsible for you and your assets in the event that you are mentally incapacitated?
• Who takes care of any minor children if you die?
• Who manages your assets and is designated to take care of your spouse and other members of your family after your death?
Your estate plan should include asset protection planning that utilizes advanced estate planning techniques. These techniques can include setting up a family limited liability company. You can also establish irrevocable trusts for your children, spouse, and yourself.
How Estate Planning and Financial Planning Can Assist with Asset Protection
You will have created a comprehensive asset protection plan once your assets are repositioned, you have completed estate planning, and determined your financial goals. At this point, if you have to deal with a creditor who has a judgment against you, you can negotiate a fast settlement for pennies on the dollar, instead of having all of your assets become vulnerable.
A Common Asset Protection Mistake
If you try to start an asset protection plan after a lawsuit is filed, or right before an anticipated lawsuit, you are making your asset protection plans known. If these plans are obvious, you will be subject to an attack and reversal by a judge or jury.
Unfortunately, many people don't learn or understand this lesson until it's too late. Asset protection is something that requires long-term planning. It's not something you should attempt as a temporary or quick fix. So, you need to have this plan in place long before are at the receiving end of a lawsuit.