You may be surprised to learn that not only has asset protection planning been around for a long time, but you likely have already engaged in it at some point during your life. In fact, you probably have one or more types of traditional asset protection planning in place right now. The problem is, in many cases, the kind of arrangement you have right now may not be enough to protect you and your family.
In the quest for financial success, using the right legal tools for asset protection is of the utmost importance. For individuals, businesses, and families, understanding traditional asset protection plans is the first step towards securing a financial future you can be proud of. At The Law Office of Raymond E. Brown, serving Anne Arundel County, Maryland and the surrounding areas, we offer tailored estate planning solutions that include a range of legal strategies designed to protect your wealth against potential threats.
So, whether you’re an entrepreneur facing the unpredictability of the business world or an individual looking to preserve your estate for future generations, our Maryland estate lawyers are here to guide you through the essentials of traditional asset protection plans. Read on to learn more or give us a call at (443) 554-9944 to speak with a member of our legal team today!
What Is Asset Protection Planning?
Asset protection planning is a strategic legal process designed to safeguard both individual assets and business assets from potential claims of creditors, lawsuits, or unforeseen financial threats. This includes things like real estate, investments, financial accounts, personal property, business property, and many other assets. By utilizing various legal structures and techniques, it ensures that a person’s wealth is preserved and protected from being unjustly or unexpectedly depleted.
When is it Too Late to Start Asset Protection Planning?
Asset protection planning is the positioning or repositioning of assets to preserve and protect your property in advance of a claim or the threat of a claim. In other words, this type of planning will not be adequate to shield your property from an existing claim. Long before there is even the hint of a claim, you need to protect your assets properly. If you transfer assets to shield them from existing creditors, it could be considered a fraudulent transfer, resulting in legal penalties.
The Importance of Asset Protection
Asset protection is a critical strategy for protecting valuable property and ensuring that one’s hard-earned assets are shielded from potential legal threats and financial uncertainties. By implementing effective legal protection measures, individuals and businesses can minimize their vulnerability to creditors, lawsuits, and other risks that could jeopardize their financial security. This not only involves the preservation of tangible assets, such as real estate and personal property, but also extends to investments, savings, and any other forms of valuable property that contribute to an entity’s net worth.
Through careful planning and strategic legal mechanisms, asset protection offers a strong defense against unforeseen challenges, ensuring that individuals and businesses maintain control over their financial well-being and can pass on their legacy to future generations with confidence.
What Is Traditional Asset Protection Planning?
Traditional asset protection planning simply refers to the use of well-established legal tools and techniques that have long been used to protect assets from potential claims by creditors, legal judgments, or other financial threats.
Traditional Asset Protection Strategies
Several types of traditional asset protection planning have been around for years. These strategies include the creation of trusts, the establishment of business entities (such as limited liability companies (LLCs) or corporations), smart titling of assets, and utilizing retirement accounts and insurance policies, all of which are recognized and respected methods under the law.
Liability Insurance Policies
Perhaps the most common asset protection strategy is liability insurance – automobile, homeowner’s, umbrella, officers’ and directors’, malpractice, and the like. You probably have at least one liability policy in place right now. Liability insurance serves as a traditional asset protection strategy by providing coverage against significant liability risks that individuals or businesses may face.
By purchasing liability insurance policies, individuals and businesses transfer the financial risk of potential legal claims or damages to the insurance company. This helps protect their assets from being depleted in the event of a lawsuit or legal judgment, ensuring that they have the financial resources to cover legal expenses and any resulting liabilities without jeopardizing their wealth or financial security.
Unfortunately, liability insurance may encourage a lawsuit because it is frequently perceived as “easy money.” Aside from this, liability insurance often fails because the coverage is inadequate, the policies have extensive exclusions, or the carrier becomes insolvent.
Business Entity Formation
Another common type of traditional asset protection planning is the use of a business entity, such as a Limited Liability Company (LLC) or Family Limited Partnership (FLP), to segregate business assets and liabilities from personal assets and liabilities. Transferring assets into the ownership of the LLC, FLP, or other business entity effectively places it under the protection of that separate entity, reducing the risk of creditors reaching personal assets in the event of a lawsuit or financial loss.
However, it’s important to note that while a corporation may shelter your assets from a lawsuit filed against the corporation, the opposite is not true – if you, as the shareholder of a corporation, are personally sued, your shares of stock in the corporation are not protected from a judgment entered against you. Of course, it is possible that if your corporation fails to observe certain formalities, then the “corporate veil” may be pierced, and your assets will become vulnerable to a judgment entered against the corporation.
Titling of Assets
Titling assets refers to the legal process of designating ownership and establishing the manner in which property or assets are held. This can include specifying individual or joint ownership, choosing the type of ownership structure (such as tenants by the entirety, joint tenancy, or sole ownership), and registering assets in the appropriate legal entities or structures. The way assets are titled can have significant implications for personal liability, taxation, and the distribution of assets upon death, making it an important consideration in traditional asset protection planning.
Retirement Accounts
Retirement accounts serve as another traditional form of asset protection planning, offering significant protections under federal law. These accounts, such as 401(k)s and Individual Retirement Accounts (IRAs), often provide unlimited protection from creditors in bankruptcy proceedings, shielding the assets held within them from potential legal claims or financial liabilities.
By contributing funds to retirement accounts, individuals can not only save for their future but also benefit from the built-in asset protection features, ensuring that their retirement savings remain secure even in the face of unforeseen financial challenges. To learn more about retirement planning in Maryland, call The Law Office of Raymond E. Brown today!
State Exemptions
Another common type of traditional asset protection planning is established under state law and allows residents to exempt specific assets from the claims of creditors. This form of protection may include protection for property owned jointly by spouses (“tenancy by the entirety” ownership), a primary residence (“protected homestead”), the cash value of life insurance, investments held in a retirement account, and annuities. Nonetheless, these state exemptions are often subject to limitations, such as placing a cap on the value or land area of the protected homestead.
Asset Protection Trusts
Asset protection trusts, including revocable trusts, irrevocable trusts, domestic asset protection trusts (DAPTs), and offshore trusts, are key components of traditional asset protection planning. These trusts operate by allowing individuals to transfer money, property, or other assets into a trust structure, thereby removing them from their personal ownership and placing them under the control of the trust.
Depending on the type of trust, assets may be protected to varying degrees from creditor claims and legal liabilities. Irrevocable trusts typically offer stronger protection, as the grantor relinquishes control over the assets once they’re transferred into the trust. Domestic trusts, or DAPTs, established within the United States provide a level of protection against creditor claims while allowing the grantor to retain certain benefits and control over trust assets. Offshore trusts, on the other hand, are established in jurisdictions outside the United States and offer additional layers of protection and privacy.
To learn more about the different types of trusts and which asset protection trust is right for you, be sure to reach out to a Maryland trust attorney like Raymond E. Brown.
Common Risks To Your Assets
Common risks to your assets can vary depending on your profession, business ventures, and personal circumstances. As such, you may face a range of potential threats, including those posed by potential creditors, lawsuits, divorce, and bankruptcy.
- Creditors represent a significant risk, as they may seek to satisfy debts by seizing assets or obtaining legal judgments against you.
- Lawsuits, whether related to personal injury, contractual disputes, or other legal matters, can result in financial liabilities that jeopardize your assets.
- Divorce proceedings can also put assets at risk, as marital property may be subject to division between spouses.
- Bankruptcy can lead to the liquidation of assets to repay debts, further compromising your financial security.
The Role of an Estate Planning Attorney in Asset Protection
An estate planning attorney plays an important role in crafting and implementing an effective asset protection plan tailored to your individual needs and circumstances. Your attorney can guide you through the complex legal process of asset protection, helping you understand the various legal entities and strategies available for protecting your assets. Whether it’s establishing trusts, forming business entities, titling assets, or utilizing other asset protection strategies, an estate planning attorney provides invaluable knowledge and guidance every step of the way.
Call Annapolis Asset Protection Attorney Raymond E. Brown Today
You may think that if you’re not a high net worth individual, you don’t need to take preventative measures to protect assets belonging to you. However, the truth is that anyone who has accumulated any amount of wealth can be sued for just about any reason. The only way to fully protect yourself and your family members is to adopt more advanced forms of asset protection planning such as irrevocable trusts and sophisticated business structures.
At The Law Office of Raymond E. Brown, our Maryland estate planning attorneys can help you go beyond traditional asset protection planning by creating a comprehensive plan that will be tailored to your unique family situation and financial status. Please give us a call at (443) 554-9944 or reach out online to set up your asset protection consultation today!
