Advanced Asset Protection Strategies
Whether you’ve built your wealth from the ground up or inherited it, taking certain precautionary measures beyond insurance is important in order to protect your assets. This is becoming more critical for women, who are increasingly likely to be the main breadwinners in households—approximately one out of five wives now earn more than their husbands, according to a CBS News article citing 2015 U.S. Census data.
That’s one reason why it has become so vital for women to incorporate asset protection planning into their overall financial pictures.
According to Forefield, an online publisher of financial education materials and resources, other reasons include:
– In general, women tend to live longer than men and will likely need their money to last longer.
– At some point in their lives, women may have to manage their own finances due to divorce, widowhood or remaining single.
– Many women are successful business owners—in 2012, there were 9 million women-owned businesses recording $1.4 trillion in receipts.
– A good asset protection plan can help you achieve financial security and independence, and give you an opportunity to have enough money to provide for your comfortable support and that of your dependents.
Forefield provides additional information about asset protection below.
What Is Asset Protection Planning?
Asset protection planning is the process of arranging your financial affairs to prevent or at least minimize the risk of your assets being used to satisfy claims of future creditors or claimants. It is not a method for hiding from or defrauding creditors.
If you have certain types of insurance, you are already engaged in asset protection to a certain extent. However, insurance may not provide all the protection you need, or it might not be available. For those situations, there are other tactics to consider.
For example, if you are a business owner or are thinking about starting a business, the type of business entity that you choose to set up is an important decision. Each option carries with it certain advantages and disadvantages to consider. Business assets owned by a C corporation, for example, are considered separate from your personal assets, which will generally not be at risk for the liabilities of the business. A number of issues should be considered when selecting a form of business entity, including tax considerations. You should consult with an attorney and tax professional before shifting assets to a corporation or other business entity.
Incorporating Trusts Into Your Asset Protection Plan
Placing certain assets in trust is another common asset protection tactic. A few of the different types of trusts are outlined below:
Protective trusts are intended to protect your assets and/or estate from creditor claims, lawsuits, an unwanted beneficiary or other threats. Your creditors are only able to reach assets in the trust to the extent of your beneficial interest in those assets.
For an irrevocable trust to be effective as an asset protection tool, you must not be able to revoke or change the trust once you establish it.
Domestic Self-Settled Trusts
The laws in several states enable you to set up a domestic self-settled trust. These trusts give the trustee discretion over whether or when to distribute trust property or income to beneficiaries.
Here are a few tips to keep in mind when considering asset protection planning:
– Plan now, not later. Planning after a claim has been filed can make the situation worse. Post-claim moves may be seen as fraudulent transfers, leaving you and your wealth manager at risk of paying the creditor’s attorney and court fees or potentially a fine.
– Asset protection planning is not a substitute for insurance. Asset protection planning should supplement liability and professional insurance, not replace it.
Personal assets are for trusts; business assets are for business entities. There is a difference. Your financial advisor can help you decide which assets belong where.
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