Asset protection planning involves applying lawful techniques that protect your assets from lawsuits and other future claims against your property. While estate planning usually involves issues associated with preserving and passing property at death, asset protection techniques address the immediate need to protect assets during your lifetime. Asset protection planning often includes establishing a series of trusts, partnerships and entities to hold legal title to your assets.
Implementing various asset protection techniques protects your assets by creating layers of protection to frustrateand discourage potential creditor’s attempts to seize your assets. The general idea underlying asset protection is that a creditor can reach virtually any asset owned by a debtor, but cannot reach assets not owned by the debtor. Once a creditor determines that your assets are actually owned by various entities, and not you as an individual, the right to a potential claim is often outweighed by the expense and time associated with going forward with any legal action. Therefore, the focus of all asset protection planning is to remove the debtor from legal ownership of assets while retaining the debtor’s control over and beneficial enjoyment of the assets.
It is important to note, however, that if you transfer property with the intent to defraud existing creditors, the transfers will not be successful. Moreover, a transfer of assets to hinder or delay your existing creditor’s collecting efforts can be voided. Therefore, it is important to implement a proper asset protection plan based on your assessable liability exposure well before a lawsuit or creditor claim arises.