Common goals of many folks is to build up their estate assets so that they can live comfortably during the Golden Years and – hopefully — have a nest egg left to pass down to their children, grandchildren, and/or other loved ones. These goals could be threatened, however, if the hard earned assets are put at risk – and they could be at risk without you even realizing it. The best way to protect your assets, your future, and your loved ones is to include asset protection planning as a component in your comprehensive estate plan. Although each asset protection plan will be tailored to the specific needs of the individual creating the plan, a tool that may be useful in asset protection planning is a trust.
Like most people, you likely operate under the belief that as long as you don’t personally do anything to put your assets at risk there is no need to worry. Unfortunately, that belief system could actually put your assets at risk now, in the future, or even after your death. The reality is that regardless of how responsible you are with your finances, your assets could be at serious risk from a number of different threats. Let’s look at a few.
The Creditor Threat
You are undoubtedly aware that a creditor of yours could potentially obtain a judgment against you and subsequently go after your assets in an attempt to satisfy that judgment. Of course, being the fiscally responsible individual that you are you may have dismissed that potential threat. What you may not have considered, however, is how creditors of a loved one could put your assets at risk. Have you put a child’s name as a co-owner of one or more of your accounts or on the deed to your home? Have you named a child or grandchild as a direct beneficiary of a retirement account, annuity or life insurance polity? Have you ever co-signed a loan for a child or other loved one? If your answer to any of these questions is yes, your assets may be at risk. More importantly, what happens to your assets after you gift them to loved ones, either during your lifetime or after your death? If you gift an assets outright you lose all control over how the asset is used. Furthermore, it then becomes vulnerable to creditors of the beneficiary if the beneficiary ends up with a judgment against him/her. With appreciated assets such as real estate and stocks, improper gifting could cause taxation that could be avoided with more careful planning.
The Divorce Threat
Just as with the “creditor threat,” you may have made the common mistake of only considering the impact of your own divorce on your assets. While you certainly should consider how your own divorce could affect your estate assets, that is not the only scenario that could put your hard-earned assets at risk. Once again, assets that you gift to a loved one could wind up in an ex-spouse’s hands after a divorce. In most states, inherited property remains separate property, and therefore is not included in the division of marital property during a divorce, as long as the inherited assets are not co-mingled during the marriage. All too often, an inheritance is co-mingled without the beneficiary even realizing it has happened, much less the implications should the marriage end in divorce.
The Long-Term Care Threat
An important aspect of any comprehensive estate plan is retirement planning. Long-term care planning should go hand in hand with your retirement plans given the exorbitantly high cost of long-term care. Regrettably, people frequently don’t recognize the need for long term care planning until it is too late. The longer you live, the higher your odds of needing long-term care. With an average yearly cost of a California nursing home of almost $100,000, and an average length of stay of 2.5 years, it is easy to see how long-term care costs could be a significant threat to your estate assets. Medi-Cal can help cover long-term care expenses; however, you must meet the eligibility requirements first, the most important of which is that you not have “countable resources” valued at over the (very low) program limit. If your assets exceed the limit, you will be expected to use those assets to pay for care before Medi-Cal will start chipping in to cover expenses. A well constructed trust-based plan can be useful in helping to plan for such public benefits.
How Can Asset Protection Planning Help?
Including an asset protection planning component in your overall estate plan can keep all of these threats, and many more, at bay. One way to protect against some of the the threats to your assets is a comprehensive living-trust based plan. Unfortunately, way too many living trusts are poorly drafted and deficient in asset protection tools. For those needing additional protection, transferring assets into an irrevocable living trust may be prudent. For example, you legally transfer ownership of the assets from you to the trust, thereby removing the asset from the reach of creditors – yours or a beneficiary’s. Likewise, creating one or more of the available Medi-Cal Protection Trusts can allow you to transfer assets out of your estate, thereby removing them from your “countable resources,” while still allowing you to receive benefits from the trusts if drafted properly. For others, the solution may be to create one or more asset protecting entities, such a corporation or limited liability company. The key, of course, to any asset protection plan is to work closely with an experienced and qualified estate planning attorney. It would be wise to steer clear of the non-attorney so-called “asset protection experts” who put on workshops and make outrageous claims. The likelihood of success with these individuals is minimal.
For additional information about asset protection planning, contact us at (916) 437-3500 to schedule a consultation.
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