Comerica Corner
Andrew Waxman
Asset Protection in Estate Planning
You've accumulated wealth, but you worry about protecting it from future potential creditors. Whether your concern is for your personal assets or your business, tools exist to offer some protection from various types of claims.
To insulate your property from such claims, you'll have to evaluate each tool in terms of your own situation. Remember, no asset protection tool is guaranteed to work, and you may have to adjust your strategies as your situation or the laws change.
Liability insurance is your first and best line of defense
Liability insurance is at the top of any plan for asset protection. You should consider purchasing or increasing umbrella coverage on your homeowners policy. For business-related liability, purchase or increase your liability coverage under your business insurance policy.
A Declaration of Homestead protects the family residence
Your primary residence is a significant asset. State law determines the creditor and judgment protection afforded a residence by way of a Declaration of Homestead, which varies greatly from state to state.
Dividing assets between spouses can limit exposure to potential liability
It may be a good idea to divide assets between you. Generally, your creditors can reach only those assets that are in your name. Also, at the time that your child reaches age of majority, it is time to remove your name from the title of his car.
Business entities can provide two types of protection--shielding your personal assets from your business creditors and shielding business assets from your personal creditors
Consider using a corporation, limited partnership, or limited liability company (LLC) to operate the business. Such business entities may shield the personal assets of the shareholders, limited partners, or LLC members from liabilities that arise from the business. The liability of these owners will be limited to the assets of the business.
Certain trusts can preserve trust assets from claims
People have used trusts to protect their assets for generations. The key to using a trust as an asset protection tool is that the trust must be irrevocable and become the owner of your property. Once given away, these assets are no longer yours and are not available to satisfy claims against you. To properly establish an asset protection trust, you must not keep any interest in the trust assets or control over the trust.
Trusts can also protect trust assets from potential creditors of the beneficiaries of the trust. The extent to which a beneficiary's creditors can reach trust property depends on how much access the beneficiary has to the trust property. The more access the beneficiary has to the trust property, the more access the beneficiary's creditors will have. Thus, the terms of the trust are critical.
It is imperative that you discuss these issues with your legal counsel. This article is not intended or written to be used and cannot be used for the purpose of avoiding tax related penalties or to offer specific legal advice.