Wherever we are in life, everyone wants to be assured that they’re financially secure. Maybe you have debt and want to ensure that your assets are protected if you need to file for bankruptcy, or maybe you’re nearing retirement age and you’re worried about the costs of long-term care.
Whatever the situation, you need answers and, more importantly, you need a plan. Working with a lawyer to develop an asset protection plan could offer just the security you need.
Asset Protection Plans: The Basics
An asset protection plan refers to any set of arrangements that can keep your property safe from seizure, but what such a plan consists of may vary depending on your concerns. For example, those worried about protecting their property from creditors because they’re at risk of bankruptcy might take different steps than someone who wants to guard their assets in the event of a divorce. Overall, though, asset protection plans consist of an assortment of financial arrangements that are legally protected from seizure due to their special status.
What Assets Are Judgement Proof?
Generally, asset protection plans focus on what happens to financial and material holdings in the course of court proceedings, and so asset protection plans seek to make your money what’s known as “judgement proof.” Overall, this means that it’s hard for a creditor to collect on any of your assets if you’re in debt. The court may still find against you, but that doesn’t matter much if all of your assets are arranged in a way that protects you from paying your creditor.
Where To Put Your Assets
What financial arrangements work best if you’re trying to protect your assets? Your lawyer will likely make several recommendations, including:
- IRA Accounts and other Retirement Plans: Retirement plans are widely protected under bankruptcy law, but there are a lot of limits on how much you can put into them in any given year. However, if you’ve built up a good base of savings, your IRA could provide a great deal of security. Traditional and Roth IRA accounts have a $1 million protection cap, and the courts can further increase this if they think it’s in the interest of justice. Other accounts, like SEP IRAs, have a separate $1 million cap.
- Trusts: Most people think of trusts as being exclusively for the extremely wealthy, but that’s not necessarily the case. In fact, if you’re worried about your finances, an asset protection trust can be a great tool. Such trusts are different from other trusts that you may be familiar with because they are what’s known as self-settled trusts. That means that the grantor – the person whose assets are placed in the trust – is also the person that the trust pays out to.
- Business Entities: Do you provide any kind of service outside the bounds of a formal business? If so, you may want to take the time to formalize your operation as an LLC, which offers excellent asset protection. In fact, that’s essentially the sole function of an LLC – to protect your personal assets in the event of a professional issue. This may not serve you well if you’re worried that someone will come after you for personal reasons, but it will at least create a delineation between your finances.
While it’s always better to avoid the types of judgements that can target your assets, for example, by negotiating with creditors instead of filing for bankruptcy, sometimes situations take a turn and you’re left with non-negotiable debts. When that happens, you need to act fast. You typically need time to organize an effective asset protection plan, so advanced planning is critical if you want to secure your financial future. Act as though your assets may come under threat, even if it seems unlikely, though, and you’ll be ready for anything.
Alex Sanders is a passionate and experienced writer with a focus on business finance, politics, public policy, and law. He is extremely passionate about social justice issues. Alex received his bachelor of science in business management from the University of Michigan.