Typically, you’ve spent many years building your wealth for your family’s future. Whether you have personal assets or businesses, you always want these things to go to your loved ones in case of incapacity or death. However, this isn’t always the situation. There are instances when you need to prepare for the unexpected, and these can include lawsuits from the creditors and other adverse judgments. This is where the legal concept of asset protection comes into play.
In simple terms, asset protection is the process of protecting one’s assets from unfortunate situations, including seizure, lawsuits, judgments, and other relevant losses. It’s composed of many strategies that can guard an individual’s wealth without violating the law on concealment, fraudulent transfer, and contempt.
If you consider engaging in the asset protection process, below are the essential protocols you should follow from the beginning:
Begin Planning Before A Liability Arises
When it comes to protecting your assets, it should be done before liability arises. That’s because when a claim or lawsuit has already been filed against you or your business, you can no longer do anything to prevent your wealth from being taken away from you.
Thus, it’s best to take action before a claim against your assets is filed in court. It may also be too late to transfer properties when there’s already a claim as it may be considered a fraudulent transfer. It’s a kind of transfer that’s intended to cheat creditors.
Take Advantage Of An Asset Protection Trust
Another asset protection protocol to follow is using an asset protection trust. This type of asset protection strategy is intended to protect all your assets from lawsuits and other related judgments, and retain access to all of them until you die. Moreover, if you consider using a trust, you have two options to choose from. These can include:
Domestic Asset Protection Trust
If you have personal assets, putting them into a domestic asset protection trust can be an excellent idea. It offers legal protection to all your wealth during your lifetime. Even if this strategy’s legal structure changes the nature of your ownership, you can still have access to your assets with this kind of trust. To better understand domestic asset protection, you can contact an experienced attorney to help explain the benefits of placing your assets into this kind of legal arrangement.
Another powerful type of asset protection is the offshore trust. Unlike the domestic one, it’s intended to protect your assets and properties from your local court jurisdiction. Meaning, anything placed under an offshore trust is beyond the reach of your local court.
Keep Your Business And Personal Assets Separate
If you’re managing a small business, you should find time to isolate it from your personal assets and properties to safeguard them from potential business liabilities. Typically, operating a business in the form of a general partnership or sole proprietorship can place you in huge financial trouble. The creditors can run after your personal wealth after exhausting all your business assets.
To keep this from happening, keep your business assets separate from your personal one.
Hold Assets In A Limited Liability Company
Whether big or small, a business can be considered a significant investment you can have in life. Just like your other possessions, you may lose its key assets when someone sues your business for damages. Because of this, you should consider holding your business assets in a limited liability company (LLC). By doing this, you can be safe from any personal liability.
For example, if you’re operating a rental property and something terrible happens to the said property, placing your business property in an LLC can ensure your wealth won’t be at risk should a lawsuit be filed against your company.
Another protocol in asset protection to pay attention to is getting insurance. When you have insurance, you can protect your assets and properties from the eyes of the creditors and judgment holders when liability arises. Instead of going after your personal wealth, they have to deal with your insurance policies before successfully taking away what you’ve built for years.
These insurance plans can include
- Business Insurance – It protects your business against lawsuits brought by someone who has been hurt by your business. This is one of the reasons why insurance is essential in every business.
- Life Insurance – It protects your loved ones upon your death.
- Auto Insurance – It protects you from liability during accidents.
- Umbrella Liability Insurance – It covers everything that your other insurance doesn’t cover.
However, it’s important to note that insurance is only a supplement to your overall asset protection strategy. Therefore, you shouldn’t rely on this thing if you want to fully protect your assets from any potential losses.
Since life is full of uncertainties, there’s no definite time when you should start your asset protection planning journey. However, if you want to safeguard yourself and your personal and business wealth as early as you can, keep these protocols in mind so you’ll know what to do when dealing with this process.
In case you need help, find a good attorney who can properly explain to you all the available options and assist you in coming up with a solid and effective asset protection strategy.