Making Sure That What's Yours, Stays Yours: Why You May Need Asset Protection - Trusts & Estates and Elder Law Newsletter

Article

3.19.25

By: Phillip Z. Blass

You work hard to accumulate wealth, property, and other valuable items. Protecting your assets is crucial because it helps ensure that the wealth, property, and other valuable items you have accumulated remain secure from potential risks, such as lawsuits, creditors, or unforeseen financial hardships. Without proper asset protection, you could lose important resources that you have worked hard to build. Here are some reasons why protecting your assets is important and common situations where it may be needed:

Why You Should Protect Your Assets

1. Shield Against Lawsuits: If someone sues you for personal injury, negligence, or any other reason, your assets may be at risk. Asset protection strategies can help shield your home, savings, and other valuable possessions from being seized.
2. Avoid Creditors: If you face financial trouble, such as bankruptcy or outstanding debts, creditors may attempt to seize your assets to satisfy their claims. Protecting your assets can prevent creditors from accessing personal property.
3. Tax Benefits: Some asset protection strategies also offer tax advantages, which can help reduce your overall tax liability. Proper planning can create tax efficiencies while safeguarding your assets.
4. Preserve Family Wealth: Asset protection can also be crucial in safeguarding family wealth for future generations. Estate planning tools like trusts can ensure that your assets pass smoothly to your heirs, reducing the risk of disputes and loss of wealth.
5. Protect Against Divorce: In case of a divorce, personal assets such as property, savings, and business interests may be divided. Asset protection strategies can help ensure that certain assets remain protected.
6. Medicaid Planning: Medicaid has specific financial eligibility requirements, and applicants must meet both income and asset thresholds. For individuals applying for long-term care benefits, the asset limit is typically quite low (around $2,000 for individuals in many states), as is the income limit (which depends on the type of Medicaid and could be under $3,000). If you have assets above that limit, you may be disqualified unless you can legally reduce your assets.

Common Situations That Require Asset Protection

1. Litigation Risk: If you run a business or hold significant assets, you may be more likely to face lawsuits. For example, if you are a doctor or a business owner, you could be sued for malpractice or negligence, resulting in significant loss. In such cases, setting up a trust or using other legal structures can help protect your personal assets from being seized. However, to be effective, such mechanisms need to be in place before a lawsuit or debt arises. Otherwise, the courts could consider these mechanisms to be fraudulent conveyances made to avoid paying creditors.
2. Starting a Business: When you start a business, your personal assets may be at risk if the business encounters financial difficulties or legal issues. Setting up a corporation or limited liability company (LLC) can help limit personal liability and safeguard your personal wealth.
3. Debt Issues: If you are unable to pay off debts or face bankruptcy, asset protection can help you shield certain assets from creditors. Tools like family limited partnerships or irrevocable trusts can be used to protect assets.
4. Divorce: During a divorce, marital assets may be subject to division. If you have significant personal or business assets, you might want to use asset protection strategies, such entering into prenuptial or postnuptial agreements, creating separately-owned as opposed to jointly-owned financial accounts, and creating trusts, to minimize the impact of asset division and ensure your wealth is protected.
5. Estate Planning: If you have significant assets and want to ensure they are passed on to your heirs in the most efficient manner, you may need asset protection strategies, such as setting up various types of irrevocable trusts and gifting strategies, to avoid or minimize estate taxes or other liabilities, such as inheritance disputes.
6. Investment in Real Estate: Owning rental properties or real estate may expose you to lawsuits or creditors if someone is injured on your property or if the investment turns sour. Structuring your real estate holdings in separate legal entities (like LLCs) can reduce the risk to your other assets.
7. Retirement Accounts and Savings: Many individuals use asset protection strategies to safeguard their retirement accounts (e.g., 401(k), IRAs) from creditors or lawsuits, ensuring that their savings for retirement remain intact.

Asset protection can be complex, and laws can vary by state. The Trusts & Estates attorneys at Pashman Stein Walder Hayden P.C. specialize in asset protection and can help you plan to ensure that you are taking the best steps to secure your assets.

Learn more about our Trust & Estates and Elder Law & Special Needs Planning Practices.

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The information contained herein is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to these materials do not create an attorney-client relationship between Pashman Stein Walder Hayden P.C. and/or its attorneys, and the reader of the materials.