Asset Protection

Asset protection is the process by which you keep your property safe from someone who wins a lawsuit against you (for example, a personal injury lawsuit or lawsuit related to foreclosure of property). The only way you can protect your assets is through a process known as asset protection planning. If you have investment real estate, you need to protect your assets from tenants. If you are a professional, you need to protect your assets from your patients or clients.

Protecting the assets you have is a critical issue today and you cannot afford to remain ignorant about this area of law. According to statistics, the average professional is likely to be sued at least once in his/her career. Lawsuits are increasingly filed today against individuals, businesses and professional practices alike and you need to take the necessary steps to protect yourself, your assets and your financial future. According to statistics:

  • 15 million civil cases are filed annually in the United States
  • America's civil justice system is the world's most expensive, with a direct cost in 2008 of $254.7 billion or 1.79 percent of the U.S. GDP
  • Americans spend more on civil litigation than any other industrialized county and twice as much as is spent on new cars
  • In other legal systems the loser in a suit must pay a large portion of the winner's legal fees. In America, each party pays their own fees, giving people less of an incentive to be cautious with lawsuits
  • In a recent survey only 16% of Americans surveyed said that they trusted the legal system to protect them from frivolous lawsuits and 83% said that the legal system has made it too easy to make invalid claims
  • Three-quarters of all small business owners in America are concerned they might be the target of a frivolous or unfair lawsuit. Six in ten say the fear of lawsuits makes them feel more constrained in making business decisions generally and 54% say lawsuits or the threat of lawsuits forced them to make decisions they otherwise would not have made
  • Small businesses paid $105.4 billion in tort liability costs in 2008
  • The average small business earning $1 million in revenue loses $20,000 each year due to lawsuits

Why asset protection plan? In asset protection planning, you take assets (non-exempt assets) that are subject to a creditor's claims and reposition them out of reach of creditor's claims (making them exempt assets). Asset protection must be conducted before there is any sign of a lawsuit, otherwise a court will view your transfers as fraudulent and you will face penalties.

The type of asset protection planning that you need depends on where you are in your career. An asset protection attorney can evaluate your unique life circumstances, your business and personal goals and the risks that could impact your financial well-being.

Don't wait to asset plan until you need it the most! There comes a point in financial transactions and legal proceedings where you can no longer take measures to protect your assets. Take preventative measures today by getting started on your asset protection plan! Remember that it is always more expensive to get out of a mess than it is to avoid the mess completely.

How to Protect Your Assets

After reviewing your financial goals and setting into place a financial plan, you will be able to determine which of your assets are exempt and which are not, and reposition them accordingly. Financial planning allows you to know your net worth and how much wealth you are expected to accumulate in the future and can help you craft a comprehensive estate plan. Asset planning decides such important issues as:

  • Who will take care of your assets if you become mentally incapacitated
  • Who will manage your assets and take care of your spouse/other family members (such as minor children) after you die

There are many asset protection planning techniques you can utilize such as family limited liability companies and irrevocable trusts. You can also use a family savings trust to hold and protect assets against lawsuits and business risks. Everything from corporations to LLCs (limited liability companies) to trusts to equity stripping to ownership techniques can be used to protect your assets. Other ways to protect your assets include the following:

  • If you live in a state that allows married couples to hold property as "Tenants by Entirety
    creditors generally cannot reach any part of the assets held in this form (unless both spouses are found liable)
  • Many types of retirement accounts receive protection under federal and state law
  • Giving- from assets gifted into an irrevocable trust for a child, to college savings plans properly titled, to charitable gifting through charitable annuity trusts to gifts to a spouse- can provide asset protection when done correctly
  • Consider incorporating or becoming a limited partnership
  • Buy liability insurance, life insurance and annuities
  • Invest in an offshore trust or if you live in Alaska, Delaware, Rhode Island or Nevada you can establish a trust (called an "Alaska Trust") for four to six years and receive protection against creditors

It is important to know how to manage these and how to structure these entities so that they interrelate in a way that works and makes sense. After reviewing your financial and estate planning goals with an asset protection attorney and repositioning your assets, you will have an asset protection plan in place. Once you have set into place an asset protection plan, if a creditor holds a judgment against you, you will be in a better position to negotiate a quick settlement for less. If you are looking for an asset protection attorney, check out our Find an Attorney page today!