By Hayes Parnell III
News-Aegis
Leeds — You work hard to maintain the lifestyle you desire and to accumulate assets. But what are you doing to protect your assets from potential legal claims against them? Lawsuits, taxes, accidents, and other financial risks are facts of everyday life. Even if you think you’re safe, misfortune can befall even the most careful person. Let’s explore the concept of asset protection and some steps you can take to protect your assets against unexpected liability claims.
Unexpected liabilities can come from: the IRS, accident victims, doctors, health-care providers, financial creditors, business creditors, and other sources.
What can you do to protect your assets? First, identify your potential loss exposure, then implement strategies that are designed to help reduce that exposure.
There are three basic asset protection techniques: insurance, statutory protection, and asset placement.
Insurance protection involves buying coverage that will shift the risk of loss to an insurance company. Review your existing coverage and be certain you are insured against death, disability, medical risk, long-term care, and property and liability losses for business and personal interests.
Statutory protection involves exemption planning. Liens or judgments cannot be attached to property that is exempt under federal or state law. Exemption planning can offer shelter only for certain assets. Both federal and state laws govern whether property is exempt or nonexempt. You must know how much of an exemption is allowed for a particular type of property.
Asset placement involves transferring legal ownership of assets to other persons, corporations, limited partnerships, or trusts. Once you relinquish ownership and control of your assets, they cannot be taken from you. If you have high exposure to potential liability because of your job or business, you may want to shift assets to your spouse. Your spouse would retain the assets that are subject to the exposure as his or her separate property, and you would retain assets that enjoy statutory protection, such as the homestead, life insurance, and annuities, as separate property.
If you own a business, a C corporation separates your business assets from your personal assets, so your personal assets will generally not be at risk for the acts of the business. Limited liability companies, limited liability partnerships, and family limited partnerships are other entities used in asset protection planning. A discussion of these will be reserved for part 2 of this column.
Talk to your friendly home-town banker about all of your financial planning and asset protection needs.
