What is Asset Protection?
Most people recognize that creating wealth is not an easy process. One aspect that most people overlook is how to protect your accumulated wealth. If you can effectively safeguard and protect your assets, you can focus on other activities geared towards increasing wealth.
One of the best and most effective ways to safeguard your wealth is asset protection. But just what is asset protection, how can it benefit you, and which practical asset protection strategies should you employ? Read on to learn how to safeguard your wealth through asset protection.
What is asset protection?
Asset protection is a legal concept referring to various allowed strategies and techniques used to guard your wealth against seizure, general loss, and civil money judgment. These techniques and strategies ensure that monies from businesses and individuals are safe from creditors' claims.
Your creditors will often plan for the best debt collection strategies. Asset protection strategies act as an additional layer of security between the creditors and your hard-earned wealth. While you can deploy various asset protection strategies even during an ongoing lawsuit, experts in the field advise businesses and individuals to initiate asset protection before a claim or liability occurs.
What are the benefits of asset protection planning?
Some of the advantages that come with effective asset protection strategies and planning include;
It ensures financial privacy
Private ownership is one of the perks that come with protecting your assets. For example, owning real property and other forms of private wealth can significantly reduce your net worth visibility. Generally, financial privacy can help you reduce risk relating to predatory legal situations.
In the case of an asset-related claim, lawyers often search through public records to find any assets to liquidate for judgment purposes. If the lawyer doesn't find anything, chances are high they won't take the case as there's nothing tangible to prove.
It reduces accountability risk
Without a good asset protection plan, you can easily lose your wealth to spousal claims and creditors. Fortunately, a well-thought-out asset protection strategy can safeguard the property you've spent time and energy accumulating. Essentially, asset protection minimizes the risk of losing your assets and keeps your businesses safe and operational.
It prevents theft
In an era when technology and data breaches are on the rise, protecting your assets can keep you safe and away from thieves' radar. If your assets information is on the internet, thieves can easily target you both physically and virtually. This is especially true if the assets are not under any protection.
It is next to impossible for someone to hack you and use the information to steal your assets with asset protection planning.
It helps with judgment proofing
One of the greatest benefits of asset protection planning is preventing your assets from being seized. For example, property in an offshore trust is outside the jurisdiction of a local court. Therefore, a court cannot seize the property, nor can creditors or a former spouse.
What are the most effective asset protection strategies?
Corporations, Limited Liability Companies (LLCs), and Limited Partnerships (LPs)
The government usually protects corporations, LLCs, and LPs through limited liability laws. This makes it hard to hold the owners accountable for the organization's or entity's debt. Using these types of businesses when borrowing credit can protect your personal assets from seizure in the case of lawsuits.
However, you need to use expert asset protection services as some of the aforementioned methods may be deemed unethical. Additionally, there are several laws relating to fraudulent transfer of assets to prevent or delay debt payments or defaulting. There are also laws that allow creditors to permeate the LLCs, LPs, and corporations and hold the individuals accountable.
Asset Protection Trusts (APTs)
APTs are seen as the safest asset protection strategy available today. An asset protection trust is a form of trust bank that discretely holds your assets and safeguards them from encroaching creditors. Assets held by an APT do not legally belong to their owners. Instead, the owner acts as a beneficiary with equitable interests in the assets. This also means the assets are protected from your creditors without contravening tax evasion laws.
However, using APTs has some noticeable limitations. One of these is that the trust cannot be overturned or revoked after creation. This is because the trust involves giving up legal ownership of your assets so as to protect them for your creditors. Additionally, most credits include spendthrift clauses that prevent using or selling any assets to repay creditors, unless in specific circumstances.
Transferring Property Rights
Individuals can transfer legal rights relating to specific assets to their relatives, spouses, or trusted friends. This protects the assets from the creditor's claims since it is no longer in your legal ownership. As such, you can technically maintain ownership of the asset without the risk of losing it to the creditor.
However, transferring property rights presents several risks, especially in the case of conflict with the party you've transferred the property to. For example, in the case of a divorce, your spouse will retain legal ownership of the asset.
Most legal jurisdictions have laws and regulations to prevent and regulate the fraudulent transfer of assets to relatives and friends. Moreover, you could be held accountable for knowingly defaulting or delaying debt repayment, which could result in huge fines or jail terms.
Ultimately, asset protection planning can help safeguard your wealth and protect your money and assets. It is noteworthy to mention that some of these strategies are intricate, and you'll need an asset protection expert to help you navigate the process safely and effectively. Before choosing an asset protection strategy, discuss what it entails, the details of the protection, and how you can get out of it if you so wish to.
