The asset protection tools and strategies you use in your plan will be as unique as your overall plan is; however, some common asset protection strategies include:
-
- Gift and estate taxes – the key to avoiding (or diminishing) estate taxes is to decrease your taxable estate. One commonly used tool for accomplishing that goal is the annual gift exclusion. This tool allows you to make gifts valued at up to $17,000 in 2023 (or $34,000 if you gift-split with a spouse) to an unlimited number of beneficiaries each year tax-free. Gift made using the annual exclusion do not count toward your lifetime exemption.
- Divorce – This protection can often be accomplished by entering into a pre-nuptial agreement prior to the marriage, if both parties are willing and the agreement meets the legal standards for such an agreement. One thing you also need to avoid is inadvertently “co-mingling” assets during the marriage which could transmute your separate property into community property.
- Beneficiaries – if you wish to make gifts to children, or others that concern you, one way to avoid the possibility of losing those assets in a divorce or squandering the assets is to use a trust to gift those assets. The assets legally belong to the trust until they are distributed to your child, meaning they will normally not be subject to the division of assets in the event of a divorce nor can they be squandered if the Trustee provides oversight as to the use of the assets.
- Creditors –transferring assets into an irrevocable trust can keep them out of the reach of creditors, as will using the proper type of joint title.
- Long-term care costs – Medi-Cal planning is a key to avoiding this threat. As part of your Medi-Cal planning component, you may consider create a special type of irrevocable trust known as a Medi-Cal trust. This trust will protect your assets and ensure that you qualify for Medicaid if you need it in the future.
The above strategies often involve sophisticated planning tools that require the skills of an experienced and qualified estate planning attorney. There are many questionable “experts” on the internet and promoting fee seminars that proclaim asset protection for very dubious strategies. It is in your best interest to avoid these unqualified persons to prevent getting involved in a high cost, unworkable scam.
