Dallas News recently published an article that’s well-worth reading. The article discusses why everyone should undertake estate planning, regardless of their wealth. Estate planning doesn’t only involve writing a will that specifies the distribution of your assets. It also has other important purposes.
Among the many reasons for estate planning is the need to safeguard assets and protect them from creditors. The assets you’ve worked so hard to save up and pass on to your beneficiaries are vulnerable to future legal claims. If you fall into debt or are sued, they could be taken from you.
It’s important to consider these issues before you’re in financial trouble and need to deal with the demands of creditors. Once you already have a potential creditor with a claim to your assets, any asset protection plan you initiate might be undone by a judge if it’s clear that you’re trying to keep assets away from specific creditors who already may have a claim on them.
Strategies for asset protection
You also need to give careful thought to how you’ll protect your assets. Trusts are one strategy for safeguarding assets. Not all trusts, however, will protect them. For example, a revocable living trust doesn’t shield your assets from people who may have a legal claim on them. Once you form such a trust, you still maintain control over its contents, and as such they’re still considered yours; the trust can be revoked and the assets seized.
One type of trust that may shield your assets is an irrevocable trust. However, with an irrevocable trust, you’re relinquishing control of the assets in the trust. To some people, under some circumstances, this loss of control wouldn’t matter. To other people, it would be a huge price to pay to gain some strong asset protection.
Another possibility is to form a Family Limited Partnership (FLP). This arrangement would pool your family’s assets into a business partnership for which various family members have shares. This arrangement could give you strong asset protection and might also offer some tax advantages. However, it also requires a great deal of forethought to plan properly so as to not jeopardize your best interests.
There are other ways to reduce your personal liability in the event of a lawsuit or to protect assets from creditors. For example, under Texas law, certain assets are already considered exempt from bankruptcy, including a variety of retirement and tax-exempt pension accounts.
When you contact an estate planning attorney, keep these issues in mind. Consider which of your assets might be most vulnerable. And be sure to discuss asset protection as part of your overall estate planning.