Ways to Protect Your Assets from Future Lawsuits

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Learn how to Protect Your Assets

Techniques to Shield Your Assets from Future Problems

It’s worth learning how to protect your assets. Learn how to implement effective asset protection techniques. The goal of asset protection is to guard against unanticipated future claims, not previously filed claims or ones that are reasonably predictable. So, what should you do?

How to Protect Your Assets:

  • Start by Purchasing Insurance

    Insurance is crucial as a first line of protection against speculative claims that could endanger your assets. This coverage may include umbrella plans, errors and omissions insurance, professional liability/malpractice insurance, cyber liability insurance, or personal and homeowner’s liability insurance.

  • Transfer Assets

    Creditors or litigants cannot seize assets you do not own—assuming the asset transfer does not violate illegal conveyance laws. Giving assets directly or through an unbreakable trust to your spouse, children or other relatives is an easy and effective way to protect those assets.

  • Re-Title Assets

    Re-titling property is another simple but powerful strategy. For example, married spouses can legally hold a home as “tenants by the entirety.” This shields the property from the personal debt of either spouse. However, this strategy does not offer any defense against the combined debts of a couple.

  • Make Retirement Plan Contributions

    Contributing the maximum allowed to qualifying retirement plans, such as 401(k)s, not only saves money for your future but also shields it from most creditors’ claims. IRAs provide only a limited level of protection.

  • Create an LLC or FLP

    A very efficient strategy to redistribute wealth among your family while maintaining control is to contribute funds to a Limited Liability Company (“LLC”) or Family Limited Partnership (“FLP”). While they are often used for real estate and other assets, these company structures are an advantageous way of managing business interests.

  • Set Up a DAPT

    A Domestic Asset Protection Trust (“DAPT”) shields the assets that you transfer to the DAPT from creditors even if you are a discretionary beneficiary. Approximately one-third of states allow DAPTs; however, you are not required to live in a particular state to reap the benefits of a DAPT. It is extremely important to properly structure and fund the trust because the courts could challenge the enforceability of a DAPT whose grantor lives in another state.

  • Chose to Create an Offshore Trust

    One of the more complicated strategies is to set up an offshore trust. Offshore trusts are created in countries with advantageous asset protection legislation. These countries often do not recognize judgments or orders issued by American courts. These can make it challenging for international creditors to enforce their claims. While offshore trusts are irrevocable, several nations permit a trust to become revocable after a certain period. This permits the collection of assets once the risk of loss has passed.

Asset protection is not meant to be a means of escaping your financial obligations or avoiding credible creditors. The goal is to protect your assets from misleading litigants or unjustified creditor claims. It is also a goal to distribute your wealth to loved ones in a way that is tax effective.