An asset protection strategy is essential to your wealth planning blueprint. It can help shield your assets from lawsuits and creditor claims.
Asset protection strategies include putting assets into different legal entities, establishing trusts, and moving financial accounts overseas. They are usually complex and costly, but they can protect your assets from frivolous lawsuits and runaway judgments.
Real Estate
Real estate is any property, including land, air rights above the property, and subsurface rights below the property. It can also include building attachments, such as roofs and fences.
If you are a real estate investor, it is crucial to protect your assets against lawsuits and creditors. You must take the necessary measures to retain everything you have worked hard for.
Many investors make many mistakes that can put their investments at risk. For example, they might mistakenly place their real estate into an LLC without creating a solid asset protection strategy.
In addition, some investors put all their investment properties into one LLC, which puts them at risk for legal issues involving one property. It is best to form individual LLCs for each rental property to avoid this.
Using land trusts is another effective asset protection strategy for real estate owners. They can provide ownership privacy and help shield your assets from creditors and lawsuits.
Other strategies include purchasing landlord insurance, forming an LLC, and using debt to limit the amount of equity that may be at risk in the event of a lawsuit. These methods can be combined to create a comprehensive asset protection strategy.
Personal Property
Personal property includes furniture, electronics, appliances, and other items not attached to real estate. It also has intangible things, such as stocks and trust fund accounts.
Fortunately, there are strategies you can use to protect your assets from creditors. These include giving assets directly or through an unbreakable trust to your spouse, children, or other relatives and re-titling your property.
Inventorying your belongings is the most important thing to do when preparing for asset protection. It can be done by walking around your home and estimating the value of each item.
Once you have accurate belongings count, you can determine how much insurance you need. Generally, the minimum amount of personal property coverage you need is equivalent to about five or 10 percent of your total dwelling limit.
You may need more than this, especially if you have valuable items like jewelry, cameras, guns, and laptops. Depending on your policy, you can add coverage for these items through the scheduled personal property, optional endorsements, or separate policies.
Proper asset protection strategies before any creditor can help you avoid future judgments, saving you money and headaches. However, it is wise to get advice from an experienced attorney before you begin any planning efforts.
Business Assets
Business assets are a company’s property, cash, and other valuable items that help it produce goods or services and market them to customers. They can be in raw materials, machinery, equipment, or intellectual property like patents and trademarks.
Depending on how they are used, assets deliver value to a business. They can help companies operate smoothly and grow profitably. They also provide financial support to assist the industry in surviving lean times or expanding its operations during growth periods.
Assets are classified based on how easily they can be converted to cash and whether they are physical or intangible. They are valued using many valuation methods, including the fair market value approach and historical cost method.
Protecting your business assets from personal creditors requires an effective legal structure. Choosing an entity that limits your liability, such as a corporation or limited liability company, will give you the most protection.
A second strategy is to use a holding and operating company. It means you will have a separate entity for your real estate and another for your other assets, such as inventory, machinery, and other items not part of the business.
It will limit your risk of being sued by a creditor. For example, if someone slips and falls on your property owned by the holding entity, they will only be able to pursue the assets of the LLC instead of your help. It will minimize your risk of losing money to a creditor that could try to attach your assets to pay a debt.
Learn more about Tax Fraud
Bank Accounts
If you are worried about your money or have concerns that your bank account could be compromised, you can use several asset protection strategies. These include legal measures like limited liability companies, family partnerships, trusts, and offshore bank accounts.
These legal structures can protect personal and business assets from being claimed by creditors in cases of lawsuits, accountability risks, claims, settlements, and bankruptcy. They can also help prevent a debtor from being accused of tax evasion, concealing assets, and fraudulent fund transfers.
The right type of bank account depends on your needs, from a basic checking account used to make small purchases to a savings account where you stash cash for emergencies and significant expenses. When shopping for a bank account, choose an FDIC-insured bank that offers minimal fees to keep your money safe.
You can also safeguard your bank account using two-factor authentication, spending limits, and bank alerts to prevent fraud. These features can be enabled through online banking or mobile apps.
Another way to protect your bank account is by changing your password frequently. Changing your password at least once a year or more is a good idea, mainly if you use the same password for other financial and personal accounts. It is also a good idea to write down your passwords on paper and keep them in a secure place that’s out of reach of others.
