Given the financial crisis the world is facing at the moment, it’s important for every person to build their wealth to ensure their family’s financial future even if they become old, incapacitated, or, in extreme cases, die. However, nothing in this world is bound to stay forever, especially if you’re at losing end of litigation initiated by your creditors.
When this happens, protecting your assets and properties will be too late. As a result, you’ll have nothing to leave to your family as a legacy. If you don’t want this to happen, you should take the whole idea of asset protection seriously.
If you’re new to this concept, keep reading this article to learn more about asset protection and how it works.
Asset Protection: What Is It?
Asset protection refers to a component of financial planning designed to safeguard personal assets from the lawsuits filed by creditors, as well as legal proceedings, such as divorce. It’s composed of different asset strategies, such as trusts, limited liability companies, and many more, that are intended to insulate assets without performing any illegal practices, including fraudulent transfers and concealment.
Whether you’re an ordinary individual or an entrepreneur, you should use this method to limit your creditors’ access to your wealth. In short, while the creditors make use of the best debt collection strategies, you, as a debtor, can resort to asset protection planning for additional security for what you’ve established for years.
Asset Protection: How Does It Work?
Now that you’re already familiar with what asset protection is, the next thing to do is to understand how this process can work for you. In doing so, you need to familiarize yourself with some elements that can impact the degree of asset protection. These can include the following:
-
Identity Of The Debtor
Before you proceed with the specifics of asset protection, you should first tackle your identity as a debtor. If you’re a debtor under your personal and individual capacity, you should consider any agreements that govern your properties. If you share assets with your spouse, assess the likelihood of a lawsuit to quickly determine how you’re going to transfer your assets safely and away from the eyes of the creditors and other judgment holders.
-
Identity Of The Creditor
It’s also important to determine the creditor’s identity, so you can utilize the right asset protection strategy for your assets. If your creditor is a government or another powerful organization, they’ll more likely have the power to seize your assets than private lenders. In other words, if you have an aggressive creditor, then you should employ stronger asset protection strategies to shield your wealth.
-
Nature Of The Asset
If you have several assets, you should also examine their likelihood of becoming subjects of your creditor’s claim. Also, know that there are specific assets that are exempt from getting seized in case of a lawsuit.
-
Nature Of The Claim
There are specific types of claims and limitations that you should be wary of when you do asset protection planning. For example, if you’re involved in claims that can be written off, then you can use it to safeguard your personal assets in case of bankruptcy, which, as a result, requires you a lower degree of protection.
Asset Protection: What Are Strategies You Can Use?
There are plenty of ways that can help protect your assets. But, the following are the most common asset protection strategies you should consider from the get-go:
-
Trust
It’s an asset protection method intended to transfer properties in a trust account for the benefit of the beneficiaries. It’s also considered the strongest asset protection strategy because the creditors can’t reach the assets placed in the account, and it can also prevent costly litigations before it actually starts.
-
Limited Liability Company
If you’re an owner of a corporation, setting up a limited liability company can be a great asset protection method. It protects your personal assets from the lawsuits filed against your business. Meaning, you’re not personally accountable for the company’s debts when you use this type of business to borrow credit.
-
Transfer Of Property Rights
Another way to safeguard your assets is to transfer property rights to your spouse or relative. It enables you to own your wealth without the risk of getting seized by your creditors. However, it can cause family conflicts since they’re also legally entitled to the properties.
Bottom Line
For most people, securing the family’s future is one of their priorities. Just like them, you also want all your assets to be transferred to your family’s next generation and not become a subject of a creditor’s claim. That said, you need to find an attorney who’s experienced in asset protection to make this happen.
Therefore, if you consider asset protection as a way to shield what you have, keep all the information mentioned above in mind so you’re fully aware and informed of what you’re getting into.
