Google the term “asset protection” and a dazzling array of articles pop up, most unrelated to the actual topic itself, and most actually the front for a sales pitch. Most people have heard of “asset protection” but don’t really know what it means, and if they need it. Others are sure that they need it, but don’t really know what it means.
In this article, we will review the meaning of asset protection, list the most common strategies for creating asset protection, and suggest who should take a hard look at implementing them. Asset protection is the process of arranging one’s affairs so that creditors and predators have minimal or no access to obtaining one’s assets in the event of a lawsuit, divorce, incapacity, or some other unexpected negative event. Without asset protection planning, a lifetime of accumulated wealth can be wiped out with one disaster.
The unexpected first step in asset protection planning is a step that does not require an attorney. We advise all of our clients to have a thorough review of all insurance coverages– business and personal. Insurance is the first line of defense in asset protection. Auto insurance will pay costs, including the cost of legal defense, due to an auto accident. Do not skimp on auto coverage, or decline uninsured motorist coverage! Homeowner’s insurance also has a component that pays for a legal defense in the event of a lawsuit against your home, as well as damages. Umbrella policies are a wise purchase for most people – these policies cover gaps in other insurances and issues over which insurance is generally not purchased or unavailable. Life insurance is essential, especially when liquid assets are insufficient topay debts, mortgage balances, and maintaining of lifestyle in the event of a death. If you do not have a great property casualty agent, or life insurance agent, please contact us, we can certainly recommend the best in the area to review and cover this base for you.
The next step in asset protection planning is to have a thorough and up-to-date estate plan. Most people do not realize that estate planning covers issues that are not just end-of-life. Florida law provides that your “next-of-kin” does NOT automatically have the right to handle your affairs if you are sick, injured, or incapacitated. Naming a trusted individual to handle your financial affairs, orto make health care decisions for you if you are not able to do so yourself, is critical to make sure that your interests are protected.The only way to ensure that your chosen person has these rights is to have the legal documents prepared correctly. This is part of estate planning, as well as the arranging of your affairs to minimize probate and out-side interference by individuals and agencies who do not have your best interest at heart. Titling of assets is also important, and having a review of how assets are titled is the next step in addressing asset protection. Many people do not realize that the Florida Constitution protects the “homestead” property of an individual who lives in the home that they own from all creditor claims and liens (except for your mortgage). This homestead protection should be guarded religiously, and many people create situations where their homestead protection is compromised because they take actions such as adding a person to their deed who does not live in the home. Many other mechanisms exist to protect other property and financial assets. These mostly involve the establishment of legal entities (such as LLC’s or limited partnershipsand certain types of trusts) to own assets. Asset protection is achieved when assets are re-titled in the name of these separate entities. With these types of mechanisms, it is usually possible to maintain control of the asset, but keep it outside the reach of creditors and predators.
Protection of assets in the marital realm is also a hot topic. Pre and post-nuptial agreements can define property rights in the event of divorce oreven as a part of a plan for the death of a spouse. We very much recommend a review in this area PRIOR to a second marriage, or in the midst of a troubled marriage. We assist clients in thoughtfully preparing these documents, realizing it is a sensitive area.
At Chechele Law, we review asset protection planning opportunities for all clients as part of estate planning projects, or conduct an asset protection review separately if there is a concern. The best time to protect your assets is now, before a negative event occurs that can wipe out wealth, or leave you playing catch-up for years to come. Most individuals would benefit from an assets protection review, whether in the stages of building wealth, preserving wealth, have just inherited assets, planning for retirement, or anticipating a life changing event. There is never a bad time to have this important conversation.
Article by by Samantha Chechele, Chechele Law