Asset protection is an integral part of the estate planning process. All kinds of creditors can potentially stake a claim to your assets both before and after your death, yet proper asset protection planning can keep most of what you have out of their reach.
Asset protection planning must happen well in advance of any future judgment or claim to have the desired effect of protecting what you have for yourself and future generations.
Where do you start? Here are a couple of ideas:
Establish an LLC
If you’re developing your own business, you may be unnecessarily exposed to liability if you’re still operating as a sole proprietor.
Many entrepreneurs incorporate their business as a limited liability company (LLC) because they appreciate the legal protections it affords them that other corporate structures do not. That’s often a great way to make sure that your personal assets aren’t taken to pay your business debts at some point in the future.
Fund a trust
Another option for sheltering your assets from creditors is to fund an irrevocable trust. These can be set up so that they benefit you during your lifetime and pass to your heirs once you die. Not every state has passed laws to allow the creation of a spendthrift trust, but if you take the proper steps you can utilize Nevada’s favorable asset protection laws to protect your assets from creditors.
How to avoid common asset protection planning mistakes
The most common mistake individuals make is trying to protect their assets once someone files a lawsuit against them. It’s too late to do so at that point, and any transfer of assets to avoid paying a potential creditor may constitute fraud. In order for your assets to be fully protected in a spendthrift trust, the assets it owns must go through a ripening period. Depending on the state and the type of asset this can take up to 2 years. You can prevent some of the more common asset protection pitfalls that individuals make by consulting with an estate planning attorney today.