Going back to basics with asset protection strategies

Going back to basics with asset protection strategies

Asset protection trusts — both offshore and domestic — can be effective vehicles for protecting your wealth in today’s litigious society. But these trusts are complex and expensive, so they’re not right for everyone. If you are looking for simpler asset protection strategies, here are a few basic, yet effective, tools to consider.

Insurance. For many people, insurance is the first line of defense against liability claims that expose their assets to risk. It includes personal or homeowners liability insurance, as well as professional liability insurance for doctors, lawyers and other professionals who are common targets for lawsuits. Adding an umbrella policy is really the first line of asset protection.

Lifetime gifts. The most effective asset protection strategy may also be the simplest: giving your assets away to your children or other loved ones. After all, a creditor can’t come after assets you don’t own. The disadvantage of this approach is you give up control of the assets.

Retirement accounts. Qualified retirement plans — such as 401(k), 403(b), and 457 plans, as well as certain pension and profit-sharing plans — are excellent asset protection vehicles. IRAs offer more limited protection. Assets held in most qualified plans enjoy unlimited protection from creditors’ claims — both in bankruptcy and outside of bankruptcy — under the Employee Retirement Income Security Act.

Keep in mind, for these strategies to work, you have to implement them at a time when there are no pending or threatened claims against you. Otherwise, you may run afoul of fraudulent conveyance laws.

If you are looking at asset protection options, we can talk about the risks and rewards for a variety of strategies. Just give us a call.