Asset protection planning involves making prudent decisions today to protect yourself, your business, and your hard-earned assets from loss due to divorce, lawsuits, creditors or bankruptcies. This type of legal planning is especially prudent for professionals and business owners, whose personal assets could be at risk due the nature of their employment, such as doctors, dentists, engineers, contractors, and realtors.
Statistically and anecdotally, we all know that the number of divorces, lawsuits and bankruptcies is staggering. While no one believes lightning will strike them, wealth created through a lifetime of work, saving, and investing can be lost overnight if these forms of man-made lightning do strike. To protect your assets from such disaster, proper risk management strategies should be given careful consideration. These strategies include exempting your assets from the claims of creditors, limiting your liability through legal entities, and transferring your risk through insurance.
Exempting Assets in Florida
State and federal laws exempt some of your assets from the claims of creditors. Important to note is that while some states allow you to choose either the state or federal exemptions, in others you must use the state exemptions … and federal bankruptcy exemptions are not available.
Once you have identified the protected asset classes available to you under applicable law, it may be prudent to maximize your protection by converting non-exempt assets into exempt assets.
Limiting Liability for Professionals & Business Owners
Many entrepreneurs operate their businesses as sole proprietors rather than through a legal entity, such as a Corporation or a Limited Liability Company. Whether their business is home-based or in the Fortune 500, these business owners are attracted by the informality of sole proprietorship. They also do not want to incur legal fees to create and maintain a legal entity. However, in addition to other advantages, conducting business through a legal entity may offer substantial risk management benefits.
While lawsuits brought against a sole proprietorship are really lawsuits against the owner’s personal assets, lawsuits against a properly created and maintained legal entity are really lawsuits against the entity’s assets. Nevertheless, the selection of an appropriate legal entity is critical for managing your risk.
Transferring Risk with Insurance
When was the last time you reviewed the details of your liability insurance program with your insurance professionals? Are your policies current? Are the coverage limits adequate and are the deductibles reasonable? Have you scrutinized the policies for loopholes? Remember: the fundamental philosophy of any insurance coverage is to pay a premium you can afford to transfer a risk you cannot afford. Take time to understand both the risks you have retained and the risks you have transferred.
Consider Utilizing Trusts to Protect Your Assets
A Last Will & Testament may not be sufficient to protect your assets against claims by others. While your Last Will & Testament can be an important document to direct the distribution of many of your assets, a Last Will & Testament does not offer the asset protection that can be achieved through more comprehensive estate planning techniques, such as a Revocable Living Trust. Generally speaking, a Revocable Living Trust is proper for individuals or families that have minor children; own a business; or have in excess of $100,000.00 in liquid assets. A Revocable Living Trust is not just for the extremely wealthy because it reduces the cost, time, and publicity of probate for all. A Revocable Living Trust can serve some limited asset protection goals.
Even with a Revocable Living Trust, your assets may not be protected from creditors, especially if you are in a medical, dental, or real estate profession, where you may become personally liable for negligence or large cash settlements. Prenuptial Agreements, Post Nuptial Agreements, Irrevocable Trusts, Family Limited Partnerships, Business Entities, and/or Off-Shore Trusts may be appropriate to safeguard your family’s financial future and preserve your wealth against claims by others. At Welch Law, we will take the time to evaluate the level of your liability risk and guide you to the proper asset protection vehicles that match your unique circumstances.