Asset protection is employing strategies meant to protect your wealth from litigation.
If you want an asset protection strategy to be a part of your financial plan, it is beneficial to do it before a problem arises. It's usually difficult, or even illegal, to implement once a legal situation comes up.
Determining your risk is one step in determining if you need an asset protection plan. Determining risk can help you choose which strategies are best suited to your situation. Some common situations where asset protection might be important include:
Almost anyone might benefit from some form of asset protection. The best plan is to meet with an estate or financial planner. They will go through assets to see which are legally attached to you, and plan how to mitigate the legal risk.
There are many levels of asset protection, and they depend on risk. Some basic methods include business insurance or umbrella insurance policies, but there are also other options.
An Asset Protection Trust (APT) takes individual assets and attempts to shield them from creditors. The main type of APT puts assets into an irrevocable trust, which can offer more wealth protection than other types of trusts.
However, the trust manages the assets and only the beneficiaries can modify it. By removing funds from your control and into an irrevocable trust, you potentially lower the impact of legal actions from creditors.
Another asset protection strategy is to create a business entity or corporation to hold assets. Some business entities that might be used for asset protection include:
Each of these business entities and corporation structures offer different levels of asset protection. Because asset protection is such an in-depth process that has legal ramifications, it is always best to meet with an advisor to consider options.