Asset protection planning is an important part of estate planning. The purpose of asset protection in the context of estate planning is to prevent a person’s lifesavings from going down the tubes as a result of a lawsuit, an imprudent investment or an unforeseen personal liability. Reducing the amount of estate taxes on an estate is another of asset protection planning.
In general trusts are a wonderful way to ensure one’s assets go for a purpose that fits in with one’s estate planning goals, as is gifting. But there are other forms of asset protection planning that work well. Let’s look at some of them.
Exemption planning refers to an individual’s right to retain certain assets in a creditor or lawsuit situation, regardless of how much money is owed. Planning in this area involves converting nonexempt assets to exempt assets where it makes sense to do so.
Life insurance is an important way not only to protect one’s loved ones in the event of one’s death, but also for protection assets from estate taxes.
Liability insurance ensures that creditors are paid in the event of a lawsuit. It also pays the majority of legal fees in the event of a lawsuit. These types of policies are especially important for those working in professions which are frequently exposed to liability.
Qualified retirement plans, such as IRAs and 401(k)s, are like a shield for assets. There are a lot of options in this area, but it is well worth exploring.
Married individuals may create a spousal gifting trust to protect assets against both creditors and estate taxes. These trusts allow the trustor to retain control and use of the assets if they become needed.
These are only some of the options available for asset protection planning. In our next post, we’ll continue looking at other options in this area.
Source: nuwireinvestor.com, “Asset Protection in Uncertain Times,” Ward J. Wilsey, January 17, 2012.