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Why You Need Asset Protection

April 26, 2016asset protection

asset protectionEstate planning can accomplish many things, including protecting your assets.  Guarding your property against creditors is essential to preserving your estate for your heirs.  Creditors include bill collectors and anyone else who may have a legal judgment against you.  Everyone can benefit from an asset protection plan, but you must create that plan before it is too late.

The purpose of asset protection

Creating an asset protection simply means analyzing your assets and organizing them in a way that provides the best possible protection against unnecessary risk or loss.  Contrary to what some people believe, when done correctly, asset protection is completely legal.  The complexity of your plan will depend on the size and nature of your estate, but your estate planning attorney will be fully capable of helping you minimize your risks.  With the proper plan, you can be prepared for any unexpected circumstances that would otherwise put your assets at risk.  You can do this without any form of tax evasion or fraud.

When to start asset protection planning

In order for your plan to be the most effective, it is necessary to put that plan in place long before debts and legal claims arise.  If not, any attempts to move your assets around after a claim has been made, or a lawsuit has been filed, could appear to be a fraudulent transfer.  Another reason for planning early is that most clients are not adept at recognizing potential sources of liability that would put their assets at risk.

Keep your personal assets separate from your business assets

If you own a business, it is crucial that you avoid commingling your business and personal assets.  There are specific types of business entities, such as Limited Liability Companies (LLCs), which are specially designed to protect the personal assets of the owner.  However, they can only provide protection if they are operated correctly.  In other words, if personal assets and business assets are not kept separate, even the owner of an LLC will run the risk of putting their personal assets at risk.

Using a trust for asset protection

The most common estate planning instrument used for asset protection is an irrevocable trust.  When you transfer assets to an irrevocable trust, they are essentially no longer a part of your estate.  For that reason, they are considered to be outside the reach of creditors and legal claims.  They are also no longer subject to estate taxes.  Trusts can be very flexible and customizable, with different types of trusts having different purposes and benefits.  So discuss all of your options with your estate planning attorney to determine the right plan for you.

Understanding the concept of fraudulent transfers

A fraudulent transfer or fraudulent conveyance refers to the action of moving your assets with the goal of evading a creditor or a legal liability. Put another way, if you convey assets to someone with the intent of hiding them from a legitimate creditor or judgment that is considered a fraudulent transfer. “Intent” does not require knowledge that hiding your assets is illegal. The only “intent” required is knowing that your assets could be have been used to satisfy a legitimate legal obligation, and you purposefully transfer them out of reach.

How to avoid the appearance of fraud

The easiest way to avoid the appearance of a fraudulent transfer is to be proactive. That means creating your asset protection plan before there is a legal judgment or debt. If you convey your assets when your asset protection plan is created, before legal proceedings have begun, you can successfully avoid the appearance of fraud. Basically, it is all about timing.

Liability insurance is an option for supplementing your protection

Liability insurance is one way to provide asset protection, especially for homeowners and business owners.  If you are required to defend a lawsuit, for instance, your liability insurance provider will handle your defense and pay any settlement or judgment, if necessary.  This is a good supplement to have because an asset protection plan is not really designed to defend legal actions or pay attorney’s fees.  For that reason, business and home owners should not substitute an asset protection plan for proper liability insurance.

If you have questions regarding asset protection, or any other estate planning matters, contact Gaughan & Connealy for a consultation either online or by calling us at (913) 262-2000.

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Casey Connealy

Casey Connealy

Known for his ability to reduce estate taxes, to minimize or avoid the nightmare of probate and, most significantly, to deliver well-crafted Estate Plans to clients based upon their lifestyles, professions, and specific situations, Mr. Connealy takes definitive measures to analyze updates in the Estate Planning industry and compare them to the various challenges his clients face daily.
Casey Connealy

Latest posts by Casey Connealy (see all)

  • The Anatomy of a Basic Estate Plan - August 20, 2019
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Testimonials

“Chris and his staff were awesome to work with. I felt like I was their only client with the personal attention and time they spent with me setting up a trust. Chris did an excellent job of making sure I understood everything I needed to and things were being set up for our families specific needs and desires. I look forward to having Chris continue to be our estate planning attorney.”
jan–
“Chris and his staff have been very accommodating, answering every question, e-mail or phone call in a timely manner. They made our Estate planning easy and comfortable-no question unanswered or looked down upon. Thank you, all.”
glenda–
“Chris and his team led us through what we felt was a complicated process in a very organized manner. Everything was explained to our satisfaction and then our decisions were executed quickly. All we had to do was sign documents. Most important, the after support has been excellent. If we have a question, the answer is always.....let us take care of that for you! Everyone in this firm is unpretentious, helpful and very knowledgeable.”
carla–
“For about 10 years my husband and I kept saying, "we need to prepare a trust or a will. We had already planned and paid for our funerals but trying to figure out the will or trust was overwhelming to us. We received an invitation in the mail to attend a seminar. After meeting with Chris we both agreed that Chris and his firm were whom we wanted to execute our Trust documents.”
kay–
“My wife and I took advantage of the free evening program put on by Gaughan and Connealy back in 2013 and later hired Chris Gaughan to do our estate planning. First thing that sold us was not only Chris's professionalism, but his knowledge and his passion for what he does. The process was very easy and thorough. Chris brought up scenarios/issues that were unforeseen but were important to have in our plans. ”
darryl–

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