Asset protection and estate planning are essential to keep your valuables protected from unforeseen circumstances. There are multiple strategies for such purposes. However, selecting the right asset protection or estate planning strategy can be a daunting task.
In this post, we’ll highlight essential strategies you can implement for asset protection and state planning. We’ll also mention the main difference between both categories.
Let’s jump right into it.
Asset Protection and Estate Planning Strategies For You
Before we begin, it is important to note the differences between asset protection and estate planning. Both of these are put in place to protect your assets, funds, properties, and other valuables. You can safeguard your assets from creditor claims or lawsuits.
On one hand, asset protection is designed to keep your assets safe proactively. On the other hand, estate planning is designed to keep assets intact after one’s eventual passing. In certain situations, a will isn’t enough to protect assets.
Do asset protection and estate planning use the same strategies?
In most cases, asset protection and estate planning share the same strategies. Since they both serve the same purpose, the difference lies in the activation time. Asse protection is active throughout one’s life while estate planning comes online after someone dies.
Now, let’s check these strategies in detail.
Limited Liability Company (LLC)
The most common way to protect your assets from an unforeseen lawsuit or claim is through an LLC. You can create an LLC easily and transfer your assets under that title. An LLC also enables you to assign multiple partners.
While it operates just like a company, you can share your assets without any worries. Any outsider claim or lawsuit exempts the assets listed under the LLC title. This is mainly because the law treats every LLC as an individual body.
Is the LLC strategy better for asset protection or estate planning?
Many financial advisors use this method for asset protection. This is mainly because, after one’s death, the ownership of the LLC transfers to the appointed kin. This creates a chain of problems in the control of assets.
However, some advisors create an extensive strategy that revolves around the next of kin. You can appoint the next owner with conditions of access to the associated assets.
Trusts
Another popular strategy you can implement is the development of trusts. There are certain types of trusts that you can develop for asset protection or estate planning. Trusts are mostly used to shield your valuables from strong lawsuits.
A trust is designed to benefit a different party unique to the one that created that trust. The party that benefits from a fund is defined as a beneficiary. You can name anybody as your beneficiary under the trust.
What kind of assets can I protect with a trust?
In most cases, a trust is designed to hold cash, bonds, stocks, and even insurance policies. You can even list your possessions and real estate under a trust as well.
A trust is a strong financial strategy as it only has a 1-to-1 channel. The trust and the beneficiary. There is no third party that can lay claim to these assets.
Can the trust owner benefit from the assets?
There is one aspect that some people consider a downside. Once you list an asset under the trust, you have to release its ownership. The asset becomes the ownership of the trust. An asset protection trust is quite specific about this aspect.
For example, you create a trust fund for your grandchild’s college education. Any asset you place in that trust will transfer your ownership. However, it will guarantee that those assets will only be used for your beneficiary’s college education.
Prenuptial Agreements
Many couples use prenuptial agreements to protect their assets from strict divorce laws. In most states, the divorcee is liable for claiming 50% of the total assets regardless of their assets.
These assets include every tangible and non-tangible asset in your possession. A prenuptial agreement can list out conditions of divorce and the limitations of a claim. Such agreements are usually put in place for protective asset protection.
Is the state involved in prenuptial agreements?
A prenuptial agreement is completely free of any influence from the state. Since it is a conscious agreement between individuals, the state doesn’t interfere with the terms and conditions. This is why many couples prefer signing a prenuptial agreement.
Life Insurance & Retirement Accounts
A viable estate planning strategy can be put in place through life insurance or retirement accounts. While it works exactly like a trust, there is a third party involved. For insurance, there is an insurance company. For a retirement account, there is a private or state-owned bank.
Your life insurance and retirement accounts only hold assets in the form of money. Other than that, you can submit property papers. You can name your next of kin and beneficiary for both of these services.
When can the assets be claimed from life insurance or retirement accounts?
A life insurance can be claimed by the next of kin after the death of the associated person. While a retirement account can be activated within their lifetime. However, the activation of a retirement account requires the approval of the account owner.
As for its protective aspect, the assets can only be claimed by the beneficiary and nobody else.
Extensive Wills
Another estate planning strategy is the creation of a will. You can get in touch with an executor to help you devise a will with all the necessary details. Your executor is a separate entity that operates under the laws of the state.
They aren’t related to your family in any way. This provides a guarantee that your will is carried out without any bias. Furthermore, the executor also holds the original copy of your will in a sealed form. This keeps your will from any alterations.
Annuities
Some people often choose annuities to protect their current assets and ensure a stable income after retirement. Just like insurance, you can purchase an annuity plan. You can either pay the entire cost upfront or choose an installment plan.
You can put high amounts of money in an annuity. In most states, the income from an annuity is free from taxation. This enables you to enjoy a tax-free income in the later stages of life. For such a purpose, you can even contact an estate planning company.
Family Limited Partnerships
Unlike an LLC where you can name anyone as a partner of the assets, FLPs are only for family members. These family members can be your parents, brothers, sisters, children, and cousins.
The control over assets is also limited for every individual member. Let’s say there are three members of a family limited partnership, every partner with have a 33.33% hold over every asset.
This ensures that one partner cannot overrule the control of assets of another member. Furthermore, this also eliminates the risk of unwanted claims and lawsuits.
Since it is a partnership, any lawsuit will have to follow the ownership rules of that specific partnership.
Gifts
Lastly, financial advisors also provide a gifting strategy that you can use. Many states allow the transfer of assets through gifting. It is a one-way tax-free transaction that can be used for cash, vehicles, properties, art pieces, jewelry, and more.
However, there is a national cap on the value of gifts. If your gifts surpass the $20000 mark, either party has to pay a gift tax implemented by the state of residency.
While this is an easy way to transfer assets, the taxation aspect makes it inefficient.
Final Thoughts
This brings us to the end of our essential strategies for asset protection and estate planning. We recommend that you put an asset protection or estate planning strategy in place as soon as possible. Strategies like trusts, LLCs, and wills can help you keep assets safe from any unwanted claims done the line. Furthermore, they remain active and imposed after one’s eventual demise.
We hope this information proves to be beneficial for you and your family. Let us know what you think about retirement accounts.
