When people hear the term “asset protection,” they usually either know very little about it, or have some idea that it’s what rich people do. While it’s true that wealthy people are more likely to have an asset protection plan, people of moderate means can benefit from them as well.
Basically, asset protection is what you do to keep your assets safe from those who would try to take them. This primarily involves protecting your assets from judgment creditors. A judgment creditor is someone who files a lawsuit against you, wins, and seeks to collect on that judgment by taking your assets.
Who needs asset protection?
A lot of people who seek to create asset protection strategies are those who have a lot of wealth. However, this is also the source of one of the many common misperceptions about asset protection. Just because you don’t have a lot of wealth doesn’t mean that asset protection is not something you should look at.
Many people who are worried about facing a lawsuit, those who work in a profession that commonly faces significant liability issues, or those who are having trouble meeting their financial obligations can often use asset protection strategies to their benefit.
How does asset protection work?
There are several asset protection strategies. For example, one strategy involves taking advantage of exempt assets.
When someone wins a lawsuit against you, that person can collect on the lawsuit through various means. The winner of a lawsuit, called a judgment creditor, can garnish your wages, seize your property, and take other actions that negatively affect your assets.
However, judgment creditors cannot take everything. There are some types of property that are exempt from creditors. These are known as exempt assets.
Asset protection involves taking currently nonexempt property and transferring it into an exempt asset.
How does asset protection work into my estate or financial plans?
Determining what you have, what you might have in the future, and what you will have after you die are all necessary steps in creating adequate financial and estate plans. Asset protection strategies intermesh with your financial and estate plans.
People typically create their estate plan after they have created financial plan, but can include asset protection planning elements in both.
When should I start asset protection planning?
It’s never too soon. A good asset protection plan can change with you over time, so starting your efforts as soon as possible will always be in your best interest. Further, waiting too long can seriously hinder your protection planning efforts. If, for example, you wait until after you’ve already been sued to start asset protection, you’ve waited too long. Starting an asset protection now is the best way to protect your assets in the future.