Asset Protection In Estate Planning
Common asset protection strategies to be considered in developing your estate plan
1. Consider asset protection in funding the trust. Some states allow property to be held in “tenancy by the entirety,” a form of joint ownership between spouses. As long as property is held in tenancy by the entirety, a creditor of one spouse cannot reach the asset. States vary as to whether this protection is lost if the asset is transferred to a trust.
2. Consider Medicaid planning. Millions of Americans become disabled each year. As Baby Boomers continue to age, more and more of the population will face long term care issues. Many Americans are forced to lose everything due to illness. To avoid this problem, carry adequate health and long-term care insurance. Another strategy is to create an “Income Only Trust.”
3. Consider Special Needs Trusts for children with special needs such as developmental disabilities, head injuries, chronic illnesses, etc. These children are particularly hard hit by the loss of a parent, emotionally and financially. Without proper planning, assets left for such children may deprive them of government benefits. With a Special Needs Trust, the assets can continue to be available to improve the childs quality of life while not making them ineligible for government benefits.
4. Consider the asset protection needs of children or other beneficiaries. While there are some limited ways to protect ones own assets from creditors, it is much easier to achieve that protection when the assets are coming from someone else.
5. Consider the use of limited liability entities. Rental property, sole proprietorships, farms, ranches, and other assets can pose significant risk. Many people continue to own these assets in their own names. However, someone receiving an injury associated with such property can sue the owner. If successful, the injured party can get all the assets of the owner and force the owner into bankruptcy. On the other hand, if the asset is operated through a corporation, a limited partnership, or a limited liability company (LLC), the owner can be insulated from personal exposure except for the value of the property in that entity.
Asset protection is an important aspect of estate planning. Without proper asset protection consideration, the assets you leave to your children might be quickly lost to ex-spouses, the government, and other creditors.