What You Need to Know About Asset Protection

Asset protection is an important issue and a big part of the financial planning process. Most people know that it’s something they should start planning now but as to what that means or where to even begin, it can be hard to know where to start looking. That’s where the articles on this blog come in. The articles here take a look at the asset protection trusts that are available, how they are used, and how you can assess your situation.

What Is Asset Protection?

Asset protection refers to the legal steps that you can take to protect your property, possessions, and income from being taken away from you by creditors. Things like a house or a car are known as assets because they can be sold for cash, which is often the currency used by creditors when they take people’s property. The easiest way to get out of debt is not to go into debt in the first place.

Being fiscally responsible is the best way to make sure you are not overwhelmed with debt when an emergency happens. Asset protection helps ensure that even if an accident occurs and a creditor tries to come after you for money, there is still something left over for yourself and your family.

How Does Asset Protection Work?

Asset protection is a form of legal protection that can help you protect your property and other items from creditors in the event you have trouble paying your credit card bills or any other form of financial obligation. Assets are the physical belongings you bring into the world. A house, car, money, furniture, art, jewelry — these are all assets. The idea behind Asset Protection is to discourage creditors by keeping them at bay. With Asset Protection you put certain assets beyond the reach of creditors. This means they cannot seize them to satisfy their debts.

What Are the Best Strategies for Asset Protection?

Use LLCs

There are numerous advantages of using an LLC. One of the greatest advantages of a limited liability company (LLC) is that it protects you from being held personally liable for any debt. How? In most states, LLCs are self-governing. Typically, the members of an LLC can exclude all but those who are specifically designated as managers or administrators.

When properly structured, an LLC can ensure that creditors only have a charging order and cannot take assets. Since there is no requirement on when distributions are made, you can pick when to distribute profits to the asset protection trust. It also allows you to use the tax losses inside of the LLC.

Asset Protection Trusts

Asset protection trusts are usually offshore entities and are completely outside the control of any U.S. or foreign government authority. The SEC can’t go over and spy on your offshore assets. On private bank accounts in Liechtenstein, they cannot get access to it even with a court order! All a foreign trustee has to do is sign “seller” once on the check written out to you (and they usually do for convenience).

What this means is, your opponent and his attorney’s hand are tied. With the Asset Protection Trust, these attorneys may have to advise their clients to settle or compromise. Regardless of the decision they make, the guarantee is your asset will be protected. It is considered the most effective tool for a reason.

Use Separate Legal Tools

If you own rental real estate, it’s essential to acquire insider knowledge on asset protection. Investors in all 50 states are at risk of losing their assets if they don’t safeguard them properly and according to the law. If you have multiple rental properties, it is best to own them in separate LLCs. This way a lawsuit does not see you lose all of them.

Utilize Your Retirement Accounts

A revocable living trust is recognized by the IRS and other government agencies as the owner of assets, no matter who is titled as the owner. You don’t have to be a rich person to set up an irrevocable living trust – many low and middle-income families can set one up for little or no money initially, and then lock in asset protection strategies that will protect their assets down the road. And yes, there are strategies that they can use with their IRA money without triggering any penalty.

Eliminate Your Assets

No one can take your money away if you don’t have any. You can pass ownership of the property to a legal tool, such as an offshore asset management trust, which you or family members can access, as described above.

Nobody should ever believe they will never be sued—it happens all the time. It’s crucial to know what kinds of problems you might encounter. Knowing the right asset management techniques isn’t enough to keep your assets secure. If you want financial protection for the legal criminals out there, you need to set up and use the proper legal resources.