What Is Asset Protection Planning?
Yahoo’s recent article entitled “How to Protect Your Money, Even If You’re Not Rich” says that contrary to what many people believe, asset protection planning isn’t just for the wealthy. The estates of anyone, in any income group, can be sued or suffer from hefty taxation.
The following strategies in a good asset protection plan can mitigate the effect of creditor claims and other issues on your wealth.
If you want and need to protect your assets, you should be proactive. However, if you have significant debt and few assets and you are subject to a lawsuit, it may be better to file for bankruptcy than to create an asset protection plan.
That’s because it’s only worth it if you have significant assets, although some events cannot be protected against. These include tax liens, mechanics liens, alimony judgments and child support claims.
An plan benefits these people the most:
- Anyone with a significant amount of assets.
- Anyone with a significant, recurring amount of credit card debt.
- Homeowners underwater on their mortgage (your mortgage balance is greater than the value of your home).
- Anyone whose profession carries with it a high probability of liability, such as doctors and attorneys.
Some assets aren’t subject to creditors, such as retirement accounts under the protection of the Employee Retirement Income Security Act of 1974 (ERISA).
You may also legally preserve a small portion of your home equity. But Louisiana residents should not rely on this. The amount exempt from seizure of Louisiana homeowners is only $35,000. Contrast this with residents of Texas and Florida who generally have an unlimited exemption from seizure.
However, if you engage in asset protection planning ahead of time with a good estate planning attorney, your attorney can place your home into an asset protection trust, which can also qualify you for long-term care benefits and help your estate avoid probate, potentially saving you and your heirs tens of thousands, maybe hundreds of thousands, all while protecting your assets from lawsuits. You really can have your cake and eat it too when it comes to asset protection planning.
For business owners or those who own property commercial or residental rental property, often an indespensible asset protection tool is a business entity such as a limited liability company or LLC. But be careful with the use of corporations, since a C corporation or S corporation can have very negative income tax effects that you should avoid if you own appreciated or appreciating property.
The goal of asset protection planning is to set a level of legal separation between you and your assets. This allows you to legally shelter your assets from creditors without doing anything illegal. This can be done through a good estate and asset protection attorney.
BOOK A CALL with me, Ted Vicknair, Louisiana Board Certified Estate Planning and Administration Specialist, Louisiana Board Certified Tax Law Specialist, and Louisiana CPA to learn more about estate planning in Louisiana, incapacity planning, and Louisiana asset protection.
If you liked this article, “What Is Asset Protection Planning?” read also these additional articles: Do I Need a Prenup? and Can a 529 Plan Help with Estate Planning? and Can You Prevent Family Fights over Inheritance?
Reference: Yahoo! (Nov. 6, 2022) “How to Protect Your Money, Even If You’re Not Rich”