You may have heard of something called asset protection planning. This is a technique that is often tied up with estate planning, but is mostly unrelated. Although it is very rare to need asset protection planning, it may really come in handy if you do need it. This guide will go over what it is, how it is usually employed, and why you might need it.
What Is Asset Protection Planning?
Asset protection planning is the process of protecting your money or possessions from either creditors or lawsuits. The only reasons someone might need to employ asset protection planning is if they have a reason to suspect they will have a lawsuit filed against them or creditors will soon claim their possessions in the near future. This may all sound slightly underhanded. In fact, asset protection planning is not legal in all states, but there are some states where it is perfectly legal. If you think you might need to protect your assets, the first step is to determine the laws in your home state by speaking with an asset protection attorney or estate planning lawyer.
Asset Protection Trusts
One of the most common types of asset protection planning takes the form of a trust. A trust is an agreement where you transfer some of your possessions to a third party, called a trustee, and then your possessions are transferred according to your will when a condition you set is met. Trusts can either be revocable or irrevocable, which describes whether or not you can access your trust once you have established it. In some states, no one can ever access the contents of an irrevocable trust, including you, tax collectors, creditors, or the courts. This is the way that a trust can be used to prevent anyone from accessing your possessions.
What Are the Risks?
As you would expect, there are many risks involved in setting up an asset protection trust, including:
- You lose access to your possessions for a time
- Setting up a trust can be an expensive process
- The trustee has the opportunity to steal from the contents of your trust.
That third risk is the most important. You should never set up a trust with anyone who you do not trustfully. You are legally transferring ownership of your possessions to someone else, with nothing but a contract requiring them to transfer them back. Before you do anything, you should speak extensively with an asset protection attorney about what your options are.