You never want your property falling in the hands of the wrong person or simply being wiped away by any lawsuits filed by some plaintiffs against you. With an increasing rate of divorces, bankruptcies, and other cases like accident victims, loan default, etc., there is an increasing chance that your property may get caught in the hands of those other than your heirs. To avoid that, you can look into asset protection planning with the help of an estate planning attorney.
Asset protection planning involves the process of taking down a property off the list of nonexempt assets, which can be claimed by potential creditors during the lawsuits, and re-positioning them as assets that are out of the reach of a creditor’s claims, called exempt assets. Asset protection planning and estate planning goes hand in hand.
In estate planning, you give a clear set of instructions about how your property will be handled, both alive (but mentally incapacitated) and after your demise. This is done to ensure that your family and the people you care about receive your money and property after you without many legal hassles. But imagine if you haven’t asset protected your estate or property, and if someone files and wins a lawsuit against you when you’re alive and active. In any case that may arise, you’ll lose your property to that person and the whole purpose of your estate planning will be defeated. That’s why you need to integrate your asset protection planning with your estate plan.
1. Own Liability Insurance: Liability insurance is a system of risk financing that protects a person or a business from being held liable under legal issues like malpractices, injury or negligence, etc. Some other common types of insurance for this purpose are business insurances, automobile, homeowners, umbrella, and long-term care policies. With these insurances in hand, you can pay for most of the damages and some or all the legal fees linked with a lawsuit. Consult with your Colorado estate planning attorney to learn more options.
2. Create Business Entities: An entrepreneur of any kind needs to separate his personal assets from his business liabilities. It will shield your personal assets from lawsuits against your company. There are many options like limited partnership, limited liability company, or corporation. Sole proprietorship should be avoided as it offers no limit on your personal liability, which can cost you your home, depending on the law of your state. General partnerships are also undesirable because if your partner loses a lawsuit out of his personal dispute, it will cost both of you.
3. Go for Asset Protection Trusts: Trusts have saved entrepreneurs and their businesses for generations. You can create a trust for your business and property, and give them away to that trust. This way, you cease to own that property in your name which ceases to satisfy your creditor’s claim against you.
There are many types of trusts like a spendthrift trust, discretionary trust, support trust, blend trust, personal trust, and self-settled trust, each having their own merits and demerits. Whichever trust type you choose, you should keep it irrevocable and let it become the owner of your property. Also, the less control you have on your trust, the less your creditors can claim its assets during the lawsuit.
4. Use Homestead Exemption: This means if you declare bankruptcy, the law prohibits courts from awarding home equity to creditors. It depends on the laws of your state. Some states allow for 100% protection, while some give partial protection. States that provide a full exemption are Florida, Iowa, Kansas, Texas, Oklahoma, and South Dakota. In Colorado, homeowners may exempt up to $75,000 of their home or other property covered. Homestead exemption should be first thing done under asset protection and estate planning.
5. Consider Keeping Assets Separate: You should avoid keeping assets in joint names of you and your spouse, or you with anyone. If you have money deposited in a joint account with your spouse, your spouse is also liable for the ownership of your windfall. This is the same for cases where you have a joint account with children, elderly parents, your roommate, or your business partner. This can also risk you and your child under financial threat if a joint owner file for divorce, incurs a tax lien, or a lawsuit judgment.
The best time to start asset protection is now. You can’t wait for a lawsuit to be filed against you, so that you can start your asset protection because that will be too late. If you do that, the court would take it as a fraudulent act and rule against allowing the transfer of your assets into a protected class, leaving your assets exposed.
Our estate planning attorneys at Keating & Lyden are experts at handling all the issues of asset protection and estate planning and are ready to help you in any way. Call us today at (303) 448-8801.