Asset Protection Amid Creditors

Asset Protection Amid CreditorsMany people only contemplate the need for asset protection when they find themselves amid the call of creditors.  The sad truth, however, is that there is normally very little to be done.  Trying to protect assets from current and known potential creditors, by creating trusts or various entities, is generally illegal.  If you want to protect your assets, you need to do so when you have no known creditors or financial woes.

The people who normally consider creating business entities to separate their personal from business assets are often small business owners themselves.  They create the separate entity to “house” their business assets so that if they are sued through the business, their personal assets will not be lost.  Many of these business owners create an entity themselves on the Secretary of State’s homepage.  Simple enough; however, if they do not have the underlying operating agreements and/or corporate documents and  are not maintaining the proper protocol annually, any creditors may be able to “pierce the corporate veil” of their business and expose their personal assets to business liabilities as well.

Even though people may be able to create a business entity themselves, experienced legal counsel is necessary to ensure the proper supporting business documents are in place and formalities are being maintained so as to ensure business and personal assets are truly separate in the face of creditor liens or lawsuits.

With that said, though business people are normally the ones who take efforts to establish creditor protection, similar proactive steps may greatly enhance your family’s financial security through the use of trust-based asset protection planning.  Perhaps you, personally, don’t think you’ll ever need creditor protection because you are financially secure through savings and insurance. But what about your children? Are they similarly secure?

If you leave their inheritance to your children outright (which most people do) and they face creditors . . . whether due to a car accident and resulting lawsuit, bad investment deal, spendthrift habits, or a divorce (yes, a soon-to-be ex-spouse is also a creditor) . . . then they could lose their inheritance that you worked so hard to leave them.  Instead, you may want to consider an estate plan that incorporates asset protection trusts for your beneficiaries.  In doing so, the money is still available to them to enjoy for their benefit during their lifetime.  However, if they ever have creditors looming (for whatever reason), then their inheritance is protected and off-limits for judgment purposes, even if your beneficiary otherwise loses his or her personal life savings.  In a nutshell, you are able to create a layer of protection for their inheritance that would otherwise be exposed.  If you intend to pass on any level of substantial assets to your beneficiaries, this is something you should definitely take into consideration and incorporate into your estate plan with an experienced estate planning attorney.

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