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T&E TALK: Basic Asset Protection Strategies

Posted by Scott T. Ditman, CPA/PFS on Jan 23, 2017 11:00:00 AM
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Asset protection trusts — both offshore and domestic — can be effective vehicles for protecting your wealth, particularly in today’s litigious society. But these trusts can be complex and expensive, so they may not right for everyone. If you are seeking simpler strategies, there are a number of basic, yet effective, tools to consider. Some involve transferring assets to another person or entity, or changing the way property is titled.

Here are a few common strategies:

Insurance: For many, insurance is the first line of defense against liability claims that expose their assets to risk. Insurance products include personal or homeowner’s liability insurance, as well as professional liability insurance for doctors, lawyers, and other professionals who are frequently targets for lawsuits.

Lifetime Gifts: The most effective strategy may also be the simplest: giving your assets to your children or other loved ones. Creditors cannot come after assets that you don’t own. The disadvantage is that you must relinquish control over the assets.

Tenancy by the Entirety:  Many states permit married couples to hold their homes or other real estate as “tenants by the entirety.” This form of ownership protects assets against claims by either spouse’s separate creditors. For example, it can be effective when one spouse is exposed to professional liability risks. It doesn’t, however, protect couples against claims by their joint creditors. Tenancy by the entirety may be a good option for people who aren’t comfortable transferring title to their spouses.

Retirement Accounts:  Qualified retirement plans — 401(k)s, 403(b)s, and 457 plans, as well as certain pension and profit-sharing plans — are excellent asset protection vehicles. IRAs offer more limited protection. Assets held in most qualified plans enjoy unlimited protection from creditors’ claims — both in bankruptcy and outside of bankruptcy — under the Employee Retirement Income Security Act (ERISA).

For these strategies to work, you must implement them when there are no pending or threatened claims against you. Otherwise, you may impacted by fraudulent conveyance laws.

Before you weigh your asset protection options, I suggest a risk assessment to evaluate your level of exposure. Armed with this information, we can determine which asset protection tools are right for you.

If you need assistance or have questions, reach out to me at SDitman@BerdonLLP.com or contact your Berdon advisor.

Scott T. Ditman, a tax partner and Chair, Personal Wealth Services at Berdon LLP, advises high net worth individuals and family/owner-managed business clients on building, preserving, and transferring wealth, estate and income tax issues, and succession and financial planning.

Topics: T&E TALK

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