WHAT IS ASSET PROTECTION AND DO I NEED IT?
By Timothy Dixon Simply Hers Magazine
Timothy E. Dixon Licensed Michigan Attorney Law Office of Timothy E. Dixon 27 N. Broad St. Hillsdale, MI 49242 Ph: (517) 437-4070 Fx: (517) 437-4062
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If you are like most people, when you hear “asset protection planning,” you think of people like President Trump, Warren Buffett, or Bill Gates. A common misconception is that only wealthy families and people in high-risk professions need asset protection planning. In reality, everyone is at risk of being sued and possibly losing everything they have worked hard to obtain. A car accident, foreclosure, medical crisis, or business failure could result in a huge monetary judgment, decimating your finances. Asset protection planning is a widely accepted and frequently used form of estate planning. It is the process of positioning property that could be vulnerable to seizure by future creditors, predators, and lawsuits in a way that discourages lawsuits, provides a valuable bargaining chip if a lawsuit arises, and minimizes loss. Asset protection planning is not about avoiding taxes, keeping secrets, hiding assets, or defrauding creditors; it is about protecting property from unexpected loss. It might surprise you to discover that you may already be taking advantage of basic asset protection strategies without knowing it. The first line of defense for asset protection is insurance, including homeowner’s, renter’s, automobile, business, malpractice, long-term care, and umbrella insurance policies. You should regularly check your insurance policies to determine if the policies cover your current assets, to confirm that the coverage amounts are still adequate, and to check that the amount of coverage has not been reduced to avoid increased premium payments. Another type of basic asset protection is achieved through investments in retirement
accounts, such as 401(k)s, traditional IRAs and Roth IRAs. Under federal law, 401(k)s and IRAs (excluding inherited IRAs) are protected from creditors in bankruptcy with certain limitations. Maximizing contributions to your retirement accounts if you are still working will not only increase your retirement savings, but will also keep investments outside of the reach of future creditors, predators, and lawsuits. If you are a landlord, real estate investor, business owner, work in a high-risk profession, or have accumulated or inherited a significant amount of unprotected property, it is highly recommended that you consider more sophisticated asset protection planning. One common trust used in more sophisticated asset protection planning is the domestic asset protection trust. Property transferred into this type of trust is no longer yours; however, you can still maintain an interest in and use of the transferred property. This type of trust provides a high level of protection for property transferred into it and protects the property from creditors, predators, and lawsuits. This type of trust can be a powerful asset protection strategy for the right person. Everyone needs some form of asset protection, but to protect your assets you must plan ahead. Asset protection planning is not a quick fix for existing legal or financial problems. In fact, if you transfer assets to shield them from existing creditors, it could be considered a fraudulent transfer with criminal law implications. An asset protection plan must be in place before a lawsuit arises or financial hardship occurs. And in some situations, a significant period of time must pass before the plan effectively protects your assets.
