If you’re not careful, creditors and legal judgments can quickly eat away at the legacy you planned for your heirs. This is why asset protection is a vital part of the estate planning process.
The Value of Asset Protection
Generally speaking, your debts must be settled by your estate when you die. However, certain assets are exempt from collection attempts.
In addition to being subject to your own debts, the inheritance you wish to leave your children, grandchildren, or other heirs can be seized to pay for their debts unless the terms of the inheritance specifically prevent this. One common example of a situation that requires careful planning for asset protection is when evidence suggests an adult child’s ex-spouse may make a claim on the estate as part of a divorce settlement.
Potential Asset Protection Strategies
Asset protection depends on many different variables, which is why it’s vital to work with an attorney who is experienced in this area. Some examples of strategies that may be helpful include:
- Create an irrevocable trust. With an irrevocable trust, you can transfer assets you wish to be treated as a separate legal entity not liable to creditors or legal judgments.
- Create a life insurance trust. Safeguard life insurance proceeds by putting them in an irrevocable life insurance trust (ILIT) so they can’t be claimed by creditors or an adult child’s angry ex.
- Consider an IRA trust. Leaving IRAs to beneficiaries in a separate IRA trust can help keep the funds away from their creditors as well as your own.
- Retitle your home. Titling your home in a manner known as Tenancy by the Entirety can protect it from liens that are the result of only one spouse’s debts.
- Form a family business. Creating Family Limited Partnerships (FLPs) and Family Limited Liability Companies (LLCs) naming your children or a family member other than your spouse as a partner can protect real estate investment property.
- Name account beneficiaries. Name beneficiaries or use a payable-on-death (POD) or transfer-on-death (TOD) account designation to ensure bank accounts transfer directly to your children.
Schedule a Consultation Today
John J. Peck, Attorney & Counsellor at Law, has practiced law in North Carolina for nearly 40 years and has extensive expertise in the area of asset protection. Call Legacy Lawyers in Wilmington or fill out the contact form on this page to schedule a free 15-minute consultation.