What Is the Best Asset Protection?
Everyone should have an estate plan incorporating asset protection and tax planning. Most people don’t realize they live with a certain level of risk and it can be addressed in their estate plan, says an article from Forbes titled “You Need An Asset Protection Plan Not Just A Will.”
Being aware of these issues and knowing that they need to be addressed is step one. Here’s an illustration: a married couple in their 50s have two teenage children. They are diligent people and made sure to have an estate plan created early in their marriage. It’s been updated over the years, adding tutors (guardians) when their children were born and making changes as needed. They have worked hard and also have been fortunate. They own a vacation home they rent most of the year and a small retail business and both of their teenage children drive cars. They don’t see a reason to tie asset protection and risk management into their estate plan. No one they know has ever been sued.
With assets in excess of $4 million and annual income of $350,000, they are a risk target. If one of their children were in an auto accident, they might be liable for any damages, especially if they own the cars the children drive.
The vacation home, if not held in a Limited Liability Company (LLC) or another type of entity, could lead to exposure risks too. If the property is not insured as an income-producing business property and something occurs on the property, the insurance company could easily refuse the claim if the house is insured as a residence.
But keep in mind that putting property into an LLC can only protect your other assets against risks happening on the property. If you are sued directly, all of your assets, including your interest in the LLC, can be subject to seizure. So having both a “top down” as well as a “bottom up” asset protection strategy is important. Various types of trusts, combined with a good LLC operating agreement by the owners of the LLC, can be a very good “top down” asset protection strategy.
If their retail business is owned by an LLC or another properly prepared entity, they have personal protection. However, if they have not followed the laws of their state for a business, they might lose the protection of the business structure.
Retirement assets also need to be protected. If they have employees and a retirement plan and are not adhering strictly to all of the requirements, their retirement plan qualification could easily be placed in jeopardy. Their estate planning attorney should be asked to review the pension plan and how it is being administered to ensure that their retirement is not at risk. However, a retirement plan that adheres to ERISA, a federal law governing retirement plans, will render a retirement plan one of the most proteted assets available.
There are several reasons why tax oriented trusts would make a lot of sense for this couple. While current gift estate and GST (Generation Skipping Tax) exemptions are historically high right now, they won’t be forever.
This couple would be well-advised to speak with their estate planning attorney about the use of trusts, to serve several distinct functions. Trusts can shelter assets from litigation, decrease or minimize estate taxes when the estate tax changes in 2026 and possibly protect life insurance policies.
Estate planning and risk management are not only for people with mansions and global businesses. Regular people, business owners and wage earners in all tax brackets need an estate plan to address their legacy, protect their assets and defend their estate against risks.
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 the Best Asset Protection?” read also these additional articles: What Happens If My Partner Dies and We’re Not Married? and What Does a Blended Family Need to Know about Finances? and Shocking! 8 Things That Can Spark a Will Contest and SCOTUS Rules States Can Recoup a Larger Share of Injury Settlements
Reference: Forbes (June 7, 2022) “You Need An Asset Protection Plan Not Just A Will”