By Eric Meadow, Esq., The Meadow Law Group
In my practice, I'm often asked for advice on how to protect or preserve assets. The primary challenge with this inquiry is its timing. People often wait until they are facing an actual or potential loss, either through law suit or other claim. There is very little which can be legally and effectively accomplished once the asset has been lost or you are on notice as to a law suit or claim against your assets unless they have already been properly protected from reach of others. In this article, I will lay out some of the basic forms of asset protection which is available to those seeking to protect what they've acquired over the years. This article touches on the two most basic; in fact there are many other forms of more complicated manners which generally require the advice and assistance of a lawyer.
• Insurance- Although often required by law or by a creditor, insurance is a very effective asset protection tool. Insurance can be purchased to protect specific assets or assets generally. It can protect assets in the event something happens to the asset or in the event an insured under the policy acts in a manner which puts your assets in jeopardy of loss. It is contractual, provides very little limitation on your ability to use and enjoy the asset, and is relatively inexpensive. However, not all insurance is created equal. Rarely does cheaper ever mean better and insurance is no exception. My advice to is make sure the quality of your insurance matches your desire to protect the quality of your assets. The downside to insurance is that you are relying on the good faith of the insurance company to protect your assets under an insurable event. You must fully understand those events and the exceptions to coverage.
• Qualified Retirement Accounts- Aside from the benefit associated with taxes, your 401k/IRA or other qualified plan offers substantial asset protection from creditors. As a way to encourage people to save for retirement, the Government has by statute made the money in these accounts unreachable from creditors in the event of bankruptcy, car accidents, contract disputes, and multiple other circumstances when you might face liability to a creditor. However, while the assets in these accounts are protected, there are pretty restrictive rules about an individual's ability to reach these assets personally before they qualify for retirement distributions. Again, the Government's way to encourage retirement planning.
After you have reviewed your insurance portfolio and opportunity to utilize qualified retirement accounts, and still feel vulnerable to potential claims or loss, you may choose to consider trusts, limited liability companies, family limited partnerships, re-classifying property ownership, and annuities. For any of these strategies, you should seek qualified legal counsel.