Each state in the United States has different laws related to asset protection, but there are vehicles that many estate planning attorneys employ for their clients. One, in particular, is Irrevocable trusts that are specifically utilized for asset protection. Each state differs as far as how much protection these trusts can offer and what types of creditors can or cannot attach to those assets that might be funded into an irrevocable type of trust that is prepared. In general, an irrevocable trust vehicle is formulated in particular ways based on that state’s laws and requirements by an estate planning attorney, who does this type of more complex planning to protect assets that are retitled and in that particular trust for the individual.

Methods of Doing Asset Protection Trust

There are ways of doing asset protection trust but it differs from state to state as to what states may require may offer certain protection. So for example, I’m licensed in the State of Florida. And in the State of Florida, when I’m talking to clients about protecting their assets, we discuss different types of mechanisms that are less costly than the preparation of a trust vehicle of that sort.  This is because many times, clients want asset protection, but they don’t want to go the route of putting their assets into a vehicle that they have to relinquish some or a good portion of control over their assets.  In addition, many clients do not want to undergo the added costs related to the preparation and management of an irrevocable trust vehicle.

In an irrevocable trust for the purpose of asset protection, the grantor or settlor, as they are called (i.e., the person settling the trust, must give up a level of control over the assets funded into the trust. So, in many cases, the grantor/settlor cannot be his or her own trustee over the principal of the trust. The grantor/settlor also would not be able to receive a benefit from the trust (i.e., be a beneficiary of the assets).  There are also other specific statutory requirements based on the jurisdictional laws.   The idea of relinquishing control over one’s assets is something that a lot of people are reluctant to do. The loss of control, along with the need for the trust to file its own tax return, and other reporting requirements, can make the irrevocable trust unattractive to the average layperson.   Individuals that do not have a great deal of wealth, and who also want protection without relinquishing control can discuss other methods that may be available to protect them against creditors.  In the state of Florida, for example, there are protections through Homestead laws and tenants by the entirety status.

Homestead

In the State of Florida, for example, we have Homestead protections for individuals. One’s homestead in general terms is one’s primary residence that you designate as your Homestead. There are other requirements, but not only do you get certain taxation breaks in the State of Florida for your Homestead Property but for creditor protection, that Homestead is protected. So any value that you put into that home can be protected from creditors to a certain extent.   Funding excess cash at hand into one’s homestead real property can protect these assets from creditors, whether that means paying down one’s mortgage or putting cash into need repairs or upgrades in the home.

Umbrella Policy

The other thing is very simple for asset protection purposes that really don’t cost a lot of money and many people don’t think about what’s called an umbrella policy through the person’s insurance company. So if you own a home, a vehicle, and own rental properties, for example, the insurance provider that one is already working with can provide an umbrella policy that covers all of the assets.  The umbrella policy basically works just like it’s called. It’s an umbrella that covers all the assets that you own under this policy.  In most cases, one should look at their total net worth and obtain an umbrella policy at least three times the value of their total net worth.  This would allow for a creditor down the line to look to the insurance policy for potential payout, rather than attaching it to the person’s personal assets.

Limited Liability Company

A limited liability company is another means of protection.   For example, if a person owns a rental property, there is a liability as the renter or other third party can get injured or incur other damages on your property.

Forming an LLC and retitling the property in the name of the LLC can help protect the owner against liability.

Each state is different as far as its laws related to business entities, their formation, and protection.  One should speak with an estate planning or corporate attorney in the state where they are looking to form the company.  An experienced attorney can also point one into a state in which formation may be better based on the individual circumstances.

Importance of Legal Assistance

It is always a wise idea to talk to an attorney specializing in the given field, rather than going just any attorney for the very reasons I’ve articulated. As an estate planning attorney, I aim to obtain a full detailed history of the client, inclusive of their goals for passing assets upon their death, but also the level of protection and control they want or need.   In addition, an attorney should have a complete understanding of the client’s assets for planning properly.   Estate planning attorneys who have experience in the field and the practice, or have what’s called a master of estate planning or tax, are not just going to prepare a simple will or a simple revocable trust. They’re going to look at the complete picture in order to provide the client a full analysis of what the recommended plan is and why.

In addition, an attorney with a tax background will be able to better advise a client as far as any possible estate or income tax implications.

One of the biggest issues in estate planning that I see today is the growing nature of the internet, and people wanting to get things done quickly and cheaply. The programs out there to create your own will or plan online can have negative consequences for individuals.  I, for example, have had multiple clients come to me who have done that type of plan and run into issues that needed correcting or after the fact. While these programs may be okay for some individuals, it is difficult to know if one is getting the best plan for their needs without speaking with a professional in the field.