Asset protection planning involves strategies that protect certain types of assets from being exposed to future risks. Examples of those risks may involve divorce, creditors or lawsuits. Some basic rules of asset protection planning include:
Rule #1:Keep ethics in mind with every step you take. Know that while the strategies employed by knowledgeable estate planning attorneys do help protect assets, you cannot “hide” assets. During a divorce, you will be forced to provide a full financial disclosure. Same goes if you later file bankruptcy. And it goes without saying, that full disclosure is required for all tax filings. Let this #1 rule be the underlying basis for all of your asset protection planning.
Rule #2:Start planning before the problems arise. Once you are aware of a lawsuit, creditor situation or legal separation heading towards divorce, it is likely too late to utilize asset protection strategies. It can even be more damaging if viewed as fraudulent leading to additional penalties or even criminal charges.
Rule #3:Most strategies involve creating trusts and/or business entities to protect these assets. To keep in line with Rule #1 it is best practice to place personal assets into trusts and business assets into business entities. Placing personal assets into a business entity may backfire and creditors may be allowed to “pierce the corporate veil”. Piercing the corporate veil is legal terminology for coming after those assets even though they are owned by a business. Trusts, when drafted correctly, are a much safer vehicle to protect personal assets.
Rule #4:Find the balance regarding the control of the assets. Estate planning attorneys can draft the language so that the owner of the asset still retains some control while separating the asset from the owner just enough that creditors and the like cannot argue no separation exists between the asset and the owner.
Rule #5:Finally, keep in mind that asset protection planning is a subset of the overall comprehensive estate plan. There may be situations where some popular asset protection strategies do not align with your overall objectives. Define your overall goals before diving into particular asset protection strategies.
Start asset protection planning now before you find yourself exposed to risks. Schedule a consultation with the experienced asset protection planning attorneys at Stouffer Legal in the Greater Baltimore area. You can schedule an appointment by calling us at (443) 470-3599 or emailing us at office@stoufflerlegal.com
