In our previous post, we began speaking about various techniques or tools for asset protection planning. As we noted, the purpose of the latter is to ensure that your assets are protected from unforeseen liabilities and creditors. Asset protection planning is essential to ensure that you are able to pass on to your family as much wealth as possible.
There are many ways to go about protecting your assets. Trusts, life insurance, liability insurance, retirement accounts, and exemption planning are among these. Here we’ll continue looking at more options.
Family limited liability companies and family limited partnerships are another way to protect your assets from creditors, depending on your needs. Investments in these entities are not accessible to creditors, and they offer greater tax benefits than putting assets in a corporation, living trust or non-revocable trust. Some of the benefits these entities offer are centralized asset management, flexibility, acceptance at financial and other institutions, ease in transferring interests, and discounted values for estate and gift tax purposes.
Asset protection trusts are another tool to consider. It is important to realize, though, that assets placed in a self-settled domestic asset protection trust do not receive protection from creditors. Several states do permit such trusts.
Offshore asset protection trusts are a better bet in terms of protecting one’s assets. These trusts are formed in countries where law protects the trust assets from creditors absolutely. Another benefit of offshore trusts is that it is typically easier to access your assets during a creditor claim. One word of caution, though: beware of offshore trust scams. Speaking with an attorney about your plans is a good idea.
A final possible tool for asset protection is captive insurance programs. These allow business owners with surplus cash flow to create their own insurance company and make insurance premium payments. These, if properly structured, can be income tax deductible and placed in an irrevocable trust which is out of one’s estate. The premium payments cannot be accessed by creditors.
There are a number of approaches to asset protection planning. You need to go with an approach that works for your needs and those of your family. Doing so will help reduce the risk of creditors swooping in and draining your estate.
Source: nuwireinvestor.com, “Asset Protection in Uncertain Times,” Ward J. Wilsey, January 17, 2012.