Asset protection is the act of legally shielding a physical or financial asset from a creditor judgment or negligence lawsuit. Protecting your assets could keep them safe for your lifetime and allow them to pass to your heirs away from creditor claims.
Exempt versus Non- Exempt
Every financial account, personal property and real estate asset is either exempt or non-exempt. This status refers to whether or not an item can be taken to settle a lawsuit or judgment against you. If an asset is non-exempt it is eligible to be taken. Through asset protection you can make most or all of your assets free from claims.
Common Protection Methods
There are several protection methods for your assets; the two most common types are Family Limited Liability Companies and Irrevocable Trusts. The first option offers only a degree of protection as creditors can make a claim against a member’s interest in the company. With Irrevocable Trusts, assets in the Trust are free from creditor collection. When the Trust ends and the holdings pass to the stated heir, these items will again be non-exempt. You can avoid this with a Lifetime Trust. This Trust allows for distributions and asset protection throughout your beneficiary’s life.
When to Protect
Asset protection is only good if you enact a protection status before you have any sign of a negligence lawsuit or creditor judgment. When you protect items after you are already legally entangled, your protection status may be reversed by a judge. The judge may also deem your actions as fraudulent. You should protect your assets right away to guarantee they will be there when you need them.