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What Exactly Is Asset Protection and Who Is It For?

Fri Jun 30, 2023 | Asset Protection |

It’s easy to lose sight of the big picture in the bustle of day-to-day life. You work hard every day to build a good life for yourself and your family, which means that you don’t always have the time or energy to plan for the future. If something goes wrong – a business decision that doesn’t pan out or you become involved in litigation – creditors could attach some of your most valuable assets. Asset protection planning can protect your wealth when things go wrong, but you have to take action before that happens. To discuss whether you need to protect your assets, contact an asset protection attorney today. 

Understanding Asset Protection

As the name might suggest, asset protection refers to legal strategies focused on the protection of your assets from seizure by creditors and depletion in value. Asset protection entails purchasing certain financial products as well as taking specific actions. It involves identifying and managing risks, as well as minimizing tax liabilities. Ultimately, the goal of asset protection is to guard those assets so that they are available to you when you need them most or so that they can be passed on to the people who are important to you. 

When you mention asset protection, people mistakenly assume that it involves questionable or even illegal activity. Asset protection does not involve the fraudulent transfer of assets, tax evasion, or concealment of any kind. An experienced asset protection attorney can help you protect your wealth in a safe and legal manner. 

It is also important to note that asset protection is not the same as estate planning. Estate planning is primarily focused on passing your wealth onto your loved ones. Asset protection, on the other hand, focuses on the use and enjoyment of your wealth now and in the future (but can also incorporate estate planning strategies). 

Common Asset Protection Strategies

To better understand what it is, it might be helpful to review some of the more common asset protection strategies: 

  • Increasing your liability insurance coverage
  • Creation of a trust
  • Funding retirement accounts
  • Purchasing cash value life insurance policies or annuities
  • Creation of an LLC
  • Tax planning

All of these strategies – and many others – are completely legal ways to protect your wealth and minimize your tax liability. An experienced asset protection attorney can review your options and discuss which ones make the most sense for you given your financial situation. 

Who Should Consider Asset Protection Planning? 

In short, asset protection planning is for anyone who has assets. While it may not make sense to take any specific actions, it is at least worth giving it some thought. People who should give serious consideration to asset protection include the following: 

  • Business owners
  • People who own multiple real estate properties
  • People who have unique, high-value assets such as artwork or expensive cars
  • People who have substantial cash and/or investments

Asset protection is not just for people who are incredibly wealthy – it is for anyone who wants to protect what they have worked for and make sure their assets pass on to their loved ones. An asset protection attorney can provide you with the guidance you need and find the options that make the most sense for you. 

Determining Your Asset Protection Needs

You may need asset protection planning if your net worth exceeds what would be the cost of an asset protection plan. This is a relatively straightforward calculation. 

Calculate Your Net Worth

The first step is to inventory all of your assets in order to determine your net worth. You should include the value of each asset, such as the current cash value of any bank accounts, retirement accounts, and other investment accounts. Be sure to include other high-value assets such as works of art or expensive jewelry. 

If you have any assets that you owe money on, such as a car, you should consider only your equity, that is, any value of the property that exceeds the amount of debt secured by the asset. For example, if you own a boat that is worth $100,000 but has a $50,000 loan on it, you would only count $50,000 toward your net worth. On the other hand, if you have a $50,000 loan on a boat that is now worth only $30,000 as a result of depreciation, you would not consider the boat as a part of your net worth. 

Real estate, often encumbered by mortgages, requires similar consideration – count only your equity. That said, if your primary residence is in Florida, it is likely protected by Florida’s generous homestead exemption that exempts it from being attached by creditors. The homestead exemption does not apply to any other real estate you own, however. As a result, any equity you have in rental or vacation properties may be fully exposed.  

Once you have inventoried all of your assets, you can determine your net worth by adding up the total equity you have in each. 

The Cost of an Asset Protection Plan

If your net worth is a large, positive number, you most likely need an asset protection plan. If your net worth is more modest, you should also consider what it may cost to protect your assets. There may be legal expenses you need to consider if, for example, you decide to set up an LLC or create a trust. Purchasing additional insurance or sweeping more money into your retirement accounts will also represent an additional cost. That said, the cost of asset protection is almost always less than the net worth you want to protect. In addition, an experienced asset protection attorney can help you find a strategy that works best for your net worth and your budget. 

Contact Ellis Law Group to Discuss Your Asset Protection Needs

At Ellis Law Group, we provide personalized asset protection planning tailored to meet your unique needs. We can help whether you are just beginning to consider asset protection or would like to review and update an existing plan. Contact us today at 561-336-6358 to schedule a consultation.