Asset protection can certainly be complicated and confusing, especially for those with larger estates.
However, there are straightforward steps that can be taken to protect property against potential future creditors, lawsuits and other unforeseen circumstances.
While there are situations that call for more elaborate and intensive asset protection plans, these common-sense, often-overlooked approaches can help head off many of the most common threats you’ll face.
Here are four fundamental asset protection strategies:
1. Be careful
This is the most obvious strategy to protect your assets. Simply be careful in how you live your life and make sure you avoid the kinds of actions that end up in lawsuits.
There are many ways an individual could end up getting sued. This could include a breach of contract or warranty. Business owners often end up in lawsuits over termination conflicts or for failing to follow proper organizational procedures.
Often, a person ends up getting sued over actions that were not necessarily malicious, but that were oversights.
If you do end up in a lawsuit, for whatever reason, then eliminate behavior that could end up used against you.
When it comes to asset protection, living your life with some degree of caution is one of the best strategies to utilize.
2. Insure against common risks
Of course, some people work in professions where there is an inherent risk regardless of how careful you live. For example, physicians – even great physicians – are susceptible to malpractice lawsuits.
In cases like this, make sure you buy insurance to cover these situations. Physicians should have liability and malpractice insurance. If you are philanthropic and are active in volunteer work or serve on the board of a foundation, consider purchasing an umbrella liability policy so if someone sues the organization you have protection. Business owners should consider buying errors and omissions coverage.
It’s simply a matter of adding an additional layer of protection against your most common threats.
3. Use a corporation to mitigate business risks
An asset protection strategy often employed in the business arena is to incorporate.
A reason for doing so is to shield your personal assets. If the business fails or someone files a lawsuit or makes a claim against the corporation, they cannot go after your personal assets.
Therefore, there is a level of risk aversion just in having a corporation.
4. Hold assets jointly
One of the most common asset protection strategies is to hold assets jointly.
When assets are jointly owned, they’re protected even if someone wins a lawsuit against you. A creditor cannot force your joint owner into selling an asset to satisfy a judgment.
For example, if you and your spouse are joint owners of your home, a creditor cannot force you to sell the home to satisfy a judgment against you because the house belongs to both of you.
For more information about crafting an asset protection strategy appropriate for you, contact Cordell Planning Partners.