You work hard to accumulate your assets, but are you putting any effort into protecting them? This is a question you should ask yourself because you could lose a lot if you are caught unprepared. With this in mind, we will take a look at asset protection from a few different angles in this post.
Small Business Asset Protection
Small business owners should be concerned about potential lawsuits and creditor claims. Some types of businesses are more vulnerable than others. A limited liability company (LLC) is one legal entity that can be used to protect your personal assets.
Once the LLC has been established, in most cases, your private resources would be protected if your business is the target of a legal action. One exception would be a personal injury claim if you directly injure someone else due to an act of negligence while you are on the job.
The asset protection also works in the reverse manner. So, for the most part, the interests of the business would be protected if you are personally sued. This being said, a court could potentially issue a charging order that would make the business assets available.
You cannot use a limited liability company to cover your tracks after you know that you are going to be sued, because this would be an illegal fraudulent conveyance.
A family limited partnership (FLP) is another possibility. If an FLP is the target of a lawsuit, personal property that is owned by the partners would be protected.
The family limited partnership’s holdings would be protected if any partner is sued, so there is two-way asset protection. It should be noted that you could potentially establish multiple family limited partnerships to implement a layered asset protection strategy.
Remarriage Asset Protection
If you are getting remarried as a person with means, you may not want to intermingle your finances with those of your new spouse with no stipulations. Under these circumstances, you could work with your fiancé to create a prenuptial agreement that is amenable to both of you.
There is also a way to protect your children’s inheritances when you are getting remarried. You can fund a qualified terminable interest property (QTIP) trust and make your children the beneficiaries.
Your surviving spouse would receive distributions of the trust’s earnings if you predecease your spouse. You could also allow for portions of the principal to be distributed as well. They could also live in a home or otherwise use property that is owned by the trust.
For the rest of their life, your spouse would be comfortable, but they would not be able to change the terms of the trust. After their death, your children would become the beneficiaries of the trust.
Nursing Home Asset Protection
Seven out of ten senior citizens will need long-term care at some point in their lives, and 35 percent will reside in nursing homes. Custodial care is very expensive, and Medicare does not cover this type of care.
Medicaid is a jointly administered federal/state government health insurance program that will pay for long-term care. Of course, it is a need-based benefit, so you cannot qualify if you have more than $2,000 in your name.
As a response, you could convey assets into an irrevocable, income-only Medicaid trust. You would be able to accept distributions of the trust’s earnings until you apply for Medicaid, but you would surrender access to the principal.
If you fund the trust at least five years before you submit your application, the principal in the trust would not count for Medicaid eligibility purposes.
Estate Tax Asset Protection
The federal estate tax looms large for high-net-worth individuals because it carries a 40 percent top rate. It is applicable on the portion of an estate that exceeds the exclusion, which is $13.61 million this year.
If you are exposed to the estate tax, there are steps that you can take to mitigate the damage.
Schedule a Consultation!
Today is the day for action if you are going through life without an estate plan. We can gain an understanding of your position and help you develop a customized plan that provides total peace of mind.
You can schedule a consultation at our Oklahoma City estate planning office if you call us at 405-843-6100. The number for our Tulsa location is 918-615-2700, and there is also a contact form on this site you can use if you would prefer to send us a message.
After helping his own family deal with a lengthy probate and the IRS following his father’s untimely death in a farm accident, Larry Parman made a decision to help families create effective estate plans designed to reduce taxes, minimize legal interference with the transfer of assets to one’s heirs, and protect his clients’ assets from predators and creditors.