Tag: Asset Protection

How To Protect Your Assets From Creditors

Protecting your assets from creditors (“asset protection”) is a topic you don’t think much about until a triggering event, and then it can jump to the top of your priorities.  The triggering event may be an accident with personal injuries on your property, a contract commitment turning bad, or involvement in a financial project where substantial resources are lost. 

Asset protection planning can take many forms, including changing asset titles or setting up structures, such as LLCs or Trusts, to own assets.  With respect to Trusts, in the past these have probably gotten more press than their actual usage would merit. That’s because North American law basically prevented moving your assets to a trust that includes you as a beneficiary and using this to shield the assets from creditors. 

Trusts serve many useful purposes, but in the U.S. asset protection for the person who establishes the trust wasn’t one of them.  This changed in 1997 when Alaska became the first state to permit self-settled asset protection trusts, competing with offshore jurisdictions, such as the Cook Islands.  The trend of U.S. states permitting individuals to use trusts to protect assets from their own creditors continues to pick up steam.  With the recent additions of Indiana and Connecticut, the number of states with asset protection trust legislation now stands at 19. 

While the rules for establishing these trusts differ by jurisdiction, they have some common themes such as: 

(1) that state’s laws must govern the trust, (2) they require a Trustee and some assets in the state, (3) the trust must be irrevocable and, (4) it must contain provisions limiting creditors’ rights.

Domestic Asset Protection Trusts (DAPTs) are becoming much more common and are one technique to consider if you are interested in protecting your assets. 

*Intended as general guidance only and not as legal advice.

Why You Should Have a Family Meeting

Many folks have not considered holding a family meeting in a slightly more formal setting like one of your advisor’s offices.  There can be many advantages to these. 

Confidence is an important outcome that we talk about here.  Do your spouse and children know what to do if you are not there?  Whether they articulate it in advance or not, most families express a substantial improvement in their sense of security knowing there are caring professionals with knowledge of their situation who are there and ready to help at any point.

This is also a great time to develop and perpetuate family values, principles and mission. A place where we are focused on being good stewards of business and personal wealth and taking care of family can facilitate discussions in this regard. Our team will provide examples if this is your first attempt at reducing your values and principles to writing.

While there are many more benefits to these gatherings, a word should also be said about confidentiality.  A meeting with your advisors does not mean disclosing too many details too early.  It is much less important to share amounts, or even specific assets, than to introduce your team and let your family know that you have thought about, and have a plan for, their long-term wellbeing.

If you have any questions about hosting a family meeting, or if you would like to set up one, please contact us.

*Intended as general guidance only and not as legal advice.

Dealing With Incapacity

We receive more calls these days from clients who have parents, spouses or other loved ones dealing with temporary and permanent incapacity.  In cases where the individual does not have an updated estate plan, these can be challenging.  There are court-supervised processes that enable appointed individuals to act on behalf of incapacitated persons. The problems with these proceedings are many.  First, the initial part, determining incapacity, can be trying as it is a public process designed to protect the individual who may be incapacitated.  Normally multiple attorneys are involved to represent all the parties and interests in the case. 

In addition, even after a guardian is appointed, the court stays involved in supervision and this often requires participation of lawyers and other professionals, thus entailing ongoing costs.  Not a pretty picture, but it does allow the person’s assets and affairs to be dealt with by a competent individual.

A much brighter picture is available to those who engage in at least some basic planning.  The key documents for solid outcomes, which are common in many of the plans we produce every month, are:  Revocable Living Trusts, Financial Powers of Attorney and Health Care Powers of Attorney.  The latter two, the powers of attorney, allow a person (the principal) to appoint another (the agent) to bind them legally.  In both cases, you have a good deal of flexibility in customizing the authorization you give the agent.  For example, there may be certain cases or times when you want the agent to act or you may want to limit their ability to authorize certain types of treatment for you.

While not necessarily required to deal with incapacities, a Revocable Living Trust can give your chosen successor the ability to deal with your assets in a fairly seamless manner.  This is true because the Trust can become the owner of the asset at any point after the plan is executed and this means that even after the incapacity, the same owner is still speaking for the asset.  In other words, the Trust owns the asset before and after the incapacity.  Things are different after the incapacity only in the sense that the person who controls the trust (the Trustee) has changed according to the terms of the document.  Normally, such terms will set out a private procedure to determine incapacity (e.g., an exam by the family physician of the person who established the trust.)  The fact that asset ownership stays in the same hands throughout the incapacity can facilitate smooth administration for the persons involved.

If you are interested in learning more about any of these documents or are dealing with issues such as the ones referenced here, please give us a call at (704) 552-5160 or send us an email.

*Intended as general guidance only and not as legal advice.

Asset Protection And Retirement Accounts

Divorce is detrimental in a number of emotional and financial ways and court cases continue to add to the list. The key question in a recent case was whether a person’s interest in his ex-spouse’s retirement accounts (e.g., through Qualified Domestic Relations Orders or QDROs) are protected as “retirement funds” under the federal bankruptcy code. This court again decided they are not protected. One message is that even though ERISA plans can provide certain bankruptcy protection for “participants” of retirement plans, this is not necessarily extended to alternate payees, such as beneficiaries who inherit them or ex-spouses.

Planning Point: In some cases, trusts can be used to help add protection for the benefits.

*Intended as general guidance only and not as legal advice.

Titling Assets To Your Trust

Many of our clients who come in to prepare or update their Will ultimately decide to include a Revocable Living Trust (RLT) in their estate plan after learning about the benefits it can provide. These benefits include privacy, avoiding or reducing probate fees and delays, and aiding in the management of their assets during periods of incapacity.

If you decide to implement an RLT, you’ll want to fund it by moving assets to it after it’s in place. For an RLT, which is the type of trust that operates as kind of a “Super Will,” you should be adding other assets within the days and weeks after you establish it. This is true because assets titled in your trust name are going to have some real advantages over assets titled in your individual name. For one, if you become incapacitated, your successor or backup trustee will be in a great position to go ahead and take action for that asset. In addition, unlike assets such as stocks, bonds or mutual funds that are titled in your name, assets titled to your trust do not have to go through probate. Avoiding this court process can save time, money and protect your family’s privacy.

RLTs are easy to handle for income tax reporting purposes. The Employer Identification Number (EIN) associated with the trust account will remain your social security number, at least so long as you are the sole trustee of your trust, which is usually the case during your lifetime.

So what’s involved with moving assets to your trust? In general, you simply need to change the name of the asset owner to your RLT. Most often this is accomplished with the assistance of your bank or other financial institution. Some assets, like closely-held business interests, for example, will have ownership agreements that need to be consulted before any title changes are made.

Here are some other general recommendations regarding assets to title and not to title to your new revocable trust:
Assets you should re-title to your new RLT:
  • Savings accounts
  • Money Market accounts
  • Mutual funds
    • Certificates of Deposit (consider delaying the transfer to maturity if the institution considers the transfer a technical termination that could reset your interest rate)
  • Publicly-traded stocks
  • Bonds
Assets you should not re-title to your new RLT because they are instead handled by beneficiary designation updates:
  • Any retirement account (IRA, 401(k), 403(b), etc.)
  • Any annuity
  • Any life insurance policy
Assets you should contact competent legal counsel before transferring to your new RLT:
  • Stock in a closely-held corporation
  • LLC ownership interests however denominated (e.g., Units, Shares, etc.)
  • Any other assets not listed in “should re-title” above

In summary, titling assets to your new Revocable Living Trust will help you get the full benefits of this valuable and versatile tool. What’s more, in most cases you’ll find the process relatively quick and painless. If you have any questions regarding the benefits of a Revocable Living Trust and whether this technique may be right for your situation, please contact us to speak with one of our attorneys.

*Intended as general guidance only and not as legal advice.

When Is The Right Time To Create An Estate Plan?

“When is the right time to create an estate plan?” “Am I too young to write a Will?” “Do I have enough assets?” These are a few common questions clients ask when inquiring with our team. Simply put, regardless of age and assets, every adult benefits from having the proper estate planning techniques in place. While the motives of creating an estate plan may vary for each individual, taking the time to create one should be a top priority at every stage of life.

Deciding what age you should be when you are ready to create a Will is a personal decision. Major life events such as marriage, growing families, and asset changes tend to ignite conversations about taking the necessary steps to protect yourself and loved ones from having to make heavy, unguided decisions.

Family Changes

Whether you are getting married, divorced, growing your family, or have aging parents, you likely want to have peace of mind that in the event something happens, your wishes will be carried out exactly as you envision. Growing families experience great joy as they navigate their parenthood journey. The important process of selecting guardianship of your adolescent children will help guarantee that they are adequately cared for in the future. Marital status often changes whom you want to make health care and financial decisions for you in the event of incapacity and is important to review every few years.

Portfolio Changes

Perhaps your years of hard work have resulted in considerable asset changes, you have come into an inheritance, or you have bought or sold property. Having a simple Will or a sophisticated trust prepared will help with a number of important goals such as: (a) providing clarity regarding distribution of your assets; (b) helping avoid or minimize the probate process; and (c) reducing taxes that might be payable on assets left behind.

Whether you are looking to protect your assets, minimize taxes in the event of a death, or protect your health care and financial decisions, creating an estate plan is essential to everyone. At any given age, working with an estate planning attorney to determine what is important to you and how to protect your legacy should be moved to the top of your to-do list. At a minimum, essential documents such as Powers of Attorney remain the most effective way to ensure that your wishes are carried out and goals are achieved. While most people tend to find legal decisions and conversations to be complex and stressful, they do not have to be. By working with a knowledgeable attorney to craft a personalized estate plan, you will be able to create a blueprint that will protect your specific wishes based on your season of life and the current goals that you have in mind.

** The information contained in this communication is not intended to constitute legal, accounting or tax advice.