Asset protection is one of those estate planning topics that, even if you have heard about it, you probably do not know much about it. When you and your attorney develop a comprehensive estate plan, you might choose to incorporate one or more asset protection tools as well. So, understanding what asset protection is, what it does, and why it matters is essential if you wish to get the most from the process.
What is asset protection?
Essentially, an asset protection plan is a collection of legal devices or strategies that will allow you to keep your assets in the event creditors seek to take them through civil judgments. What we’re talking about is protecting yourself from lawsuits, and protecting your assets against the possibility that you might lose a lawsuit.
Isn’t asset protection illegal?
A common misperception people have about asset protection is that it is somehow illegal. It is not.
At it’s most basic, asset protection is all about looking at what you have now, and what you believe you might have in the future, and then evaluating different legal tools that will be able to help you keep your assets. The tools you will use are specifically created or allowed for by various laws. In other words, your asset protection plan begins by looking at what the law allows.
The notion that asset protection is somehow illegal or criminal often arises because people mistakenly conflate it with tax evasion. Asset protection is not the same as tax evasion. In fact, it is very different.
Tax evasion is the illegal avoidance of paying the taxes you owe. Asset protection is the process in which you protect your assets from those who might seek to take them. Asset protection plans use tools that are specifically allowed under either state or federal law, and, as such, are in no way illegal or criminal.
What will my asset protection plan look like?
There is no one-size-fits-all solution when it comes to asset protection. Only after you and your attorney sit down to discuss your current situation, your long-term goals, and what you want to accomplish, can you then begin crafting a suitable plan.
For example, some people who own their own businesses might need to create a business structure that allows for the business owner’s personal property to be protected from lawsuits filed against the company. But what if you aren’t a business owner or entrepreneur? Can you still use a liability-shielding business structure to protect yourself and your assets?
The answers to these types of questions all depend on your circumstances. Your attorney will evaluate your situation, tell you what your options are, and guide you through the process of creating a plan.