As you begin to accumulate substantial wealth, it’s natural to worry about protecting it from future potential creditors. At the Law Offices of Lawrence Israeloff, we understand your concerns and are here to share the latest insights on safeguarding your personal or business assets. Whether it’s from tax collectors, accident victims, healthcare providers, credit card issuers, business creditors, or other potential claimants, these tips and tools can help you secure your wealth.
Evaluating Asset Protection Tools
To insulate your property from claims, you’ll need to evaluate each tool in terms of your specific situation. For some, insurance and a Declaration of Homestead might be sufficient to protect their home because their exposure to claims is low. For those with higher exposure, creating a business entity or an offshore trust might be necessary. It’s important to remember that no asset protection tool is guaranteed to work, and you may need to adjust your strategies as your situation or the laws change.
Liability Insurance: Your First and Best Line of Defense
Liability insurance is the cornerstone of any asset protection plan. Consider purchasing or increasing umbrella coverage on your homeowner’s policy. For business-related liability, ensure you have adequate coverage under your business insurance policy. Generally, the cost of premiums for this type of coverage is minimal compared to the potential costs under a court judgment should you ever be sued.
Declaration of Homestead: Protecting the Family Residence
Your primary residence is likely your most significant asset. State laws determine the level of creditor and judgment protection afforded to a residence through a Declaration of Homestead, which varies greatly from state to state. Some states provide a complete exemption for a residence’s entire value, while others offer limited exemptions or exemptions under specific circumstances. Filing a Declaration of Homestead is straightforward: pay a small fee, fill out a simple form, and file it at the registry where your deed is recorded.
Dividing Assets Between Spouses
If one spouse works in an occupation or business with higher potential liability, it may be wise to divide assets between spouses. By doing so, the spouse with lower exposure retains sole ownership of valuable assets, limiting the reach of potential creditors to the assets in the higher-risk spouse’s name.
Business Entities: Dual Protection
Using a corporation, limited partnership, or limited liability company (LLC) can shield personal assets from business creditors and business assets from personal creditors. These entities limit the liability of owners to the assets within the business. For personal creditors, corporations, limited partnerships, and LLCs offer protection by limiting the rights creditors have to those conferred by ownership shares or interests.
Trusts: Preserving Assets from Claims
Trusts have been used for generations to protect assets. An irrevocable trust that becomes the owner of your property can safeguard these assets from claims. Properly establishing an asset protection trust requires relinquishing all interest and control over the trust assets. Trusts can also protect assets from beneficiaries’ creditors, depending on the terms set within the trust. Types of asset protection trusts include:
- Spendthrift trusts
- Discretionary trusts
- Support trusts
- Personal trusts
- Self-settled trusts
For additional protection, consider placing the trust in a foreign jurisdiction that does not honor U.S. judgments, such as the Bahamas, the Cayman Islands, Bermuda, Belize, Jersey, Liechtenstein, or the Cook Islands.
A Word About Fraudulent Transfers
Be aware that courts will ignore transfers to an asset protection trust if:
- A creditor’s claim arose before the transfer
- The transfer was made with intent to defraud a creditor
- Debts were incurred without a reasonable expectation of paying them
By carefully evaluating and implementing these strategies, you can protect your wealth from potential claims. At the Law Offices of Lawrence Israeloff, we’re here to help you navigate these complex tools and ensure your assets are safeguarded. Contact us today to learn more about how we can assist you with your estate planning and asset protection needs.
