Asset protection is taking thoughtful steps to keep your financial life safe and secure. We live in a litigious society, endure wild swings in the housing market and live with uncertainty in our careers. You work hard to build equity in your home and accumulate a “nest egg” for the future. Asset protection focuses on steps you can take to keep your nest egg from being taken from you.
What are these steps? Is it only for the wealthy? Is it expensive? I’ll share a brief overview to answer those questions.
First, who is this for? It is for everyone who has some equity in their home or some savings or other assets. It is not just for the rich. Incidentally, most successful people implemented some asset protection steps early so they wouldn’t lose everything and start over.
Is it expensive? Yes and No. There are many steps you can take. Some are simple and cheap and some are complicated and expensive. As you accumulate more it is common to spend a little more to protect it.
What are the steps? Here are some examples:
1. Start with insurance. It is the first line of defense. Work with a reputable agent. Make sure you are appropriately insured. Add “umbrella coverage” so that you are protected from claims outside the normal coverage of your policies. I volunteer as a little league coach, a cub scout leader and on non-profit organization boards. I make sure my insurance coverage extends to protect me in all those circumstances. Do you?
2. Hold title to your home as “tenants by the entirety.” This way of owning property together works like “joint tenancy with right of survivorship” (if one dies, the other gets the property), but offers some additional advantages. If you hold title to your house this way, one spouse cannot transfer or encumber the property without the consent of the other. More importantly, a creditor of only one spouse cannot go after your house like with JTWROS.
3. Incorporate if you conduct business (either a corporation or a limited liability company). Properly set up and conducted, these entities offer a shield against personal liability.
4. As you acquire more and more property, establish “cells” to limit loss and protect the “mother ship”. This is like the way cars are designed to absorb crash impacts and protect the passengers. You want to make sure any losses are small and your “passengers’ are safe.
5. Irrevocable trusts and fractional ownership of assets are more sophisticated techniques for those with more at risk.
6. Lastly, we live in an era where divorce is common. Observing basic rules on how to keep some of your assets “off the table” in a divorce can save you a bundle. This does not mean it is okay to hide assets!
We all seek peace of mind and financial security. We help folks get there. Whatever your circumstances, worrying does not help you. Taking action does. For individual legal advice please contact one of our lawyers who specialize in protecting you.