What Is Asset Protection?

Many people think that asset protection is only for the extremely wealthy and is not useful for anyone else in estate planning. Despite this general assumption, asset protection strategies can benefit many different kinds of people in different walks of life. Unexpected debts, accidents, legal troubles, or taxes can have a significant impact on an individual’s assets, no matter their financial standing. Understanding the importance of asset protection, particularly when estate planning, could help avoid major financial catastrophes.

There are many different philosophies on how to protect one’s assets, and these strategies are often largely influenced by local state laws and regulations. Navigating the legal landscape of estate planning may be challenging for individuals who are not already familiar with the territory. 

A skilled California asset protection attorney may be able to provide insight into asset protection strategies that help protect your financial future. Consider scheduling a consultation today by calling the office at (949) 274-9975.

Basic Principles of Asset Protection

Asset protection is based on the idea of allocating valuable assets and resources into different accounts and legal entities so that when creditors or financial crises come these assets are kept safe. Asset protection essentially separates certain assets from the legal possession of the individual via a trust, retirement account, or other legal entity, which protects it from creditors or liabilities in the future. 

If an individual has all of their property in their name, a financial emergency like a car accident or legal battle could lay claim to those assets. Liability for certain legal or financial matters could quickly deplete an individual’s assets and leave them vulnerable to creditors. However, if these assets are secured in a separate legal entity, creditors may be limited in what they seize or what is payable in damages. Asset protection can help secure a financial future and protect an individual from financial emergencies. 

How to Protect Assets in California

There is more than one way to protect assets in California. Just as there are hundreds of thousands of different people planning their estate, there are many different ways to construct a plan that includes effective asset protection. Understanding and preparing for different strategies for asset protection could help create a tailored, unique estate plan that effectively protects your assets the way you want them to. Therefore, familiarizing oneself with the various options for asset protection could help strengthen an estate plan and more effectively secure assets from creditors and financial emergencies. 

Asset Protection Trust

One of the primary means of asset protection is an asset protection trust. Trusts are common tools for wealth management and estate planning that take many forms such as revocable trusts, irrevocable trusts, and many more. Asset protection trusts, in particular, are designed to protect against creditors and litigation, but may also have probate and estate planning benefits. However, California law may impose certain restrictions and guidelines to ensure that asset protection trusts are being used ethically and within the legal limitations. Understanding how to create and maintain a legally compliant asset protection trust may be a key to effective estate planning.

Consider speaking with an experienced asset protection attorney from Wakefield Law Firm for more details on how to create an asset protection trust. 

Retirement Accounts

According to Cal. Code Civ. Proc. § 704.115, retirement accounts such as employer-provided IRAs, 401(k) accounts, individual retirement accounts, annuities, and more may be exempt from certain taxes or liability claims. This means that certain retirement accounts could factor into planning for asset protection in an estate plan. However, one must understand the nature of each retirement account and what it is exempt from under California law. A clear view of these details may help provide insight into what retirement accounts or other asset protection entities are right for the individual. 

LLCs for Business

While not often considered a part of estate planning, LLC registrations for businesses are also a means of asset protection. An LLC protects a business owner’s personal assets from liability because of the business. If a business without an LLC or other business entity to protect the owner is sued, the owner’s assets may also be at risk of seizure. An LLC separates these personal assets from business assets to help limit the damage of potential litigation. Additionally, many other types of business entities may be useful to business owners, as each offers different tax benefits or other organizational benefits. 

Insurance

Purchasing an insurance policy may also be a means of asset protection, as it could provide financial support and protection from liability. Generally, this is the reason most people purchase insurance. In the event of an emergency or litigation, the insurance company will assist and limit the damages. Insurance is particularly helpful for disaster preparedness, but it could also factor into estate planning with life insurance and other policies. 

Legal Implications of Asset Protection

Asset protection can provide many benefits for estate planners and can help solve problems by securing valuable assets. However, there are also legal implications and requirements to protect these assets. Certain legal entities may benefit some people while hindering others and their goals. Therefore, understanding these dynamics could help smooth out complications with estate planning and asset protection. 

Benefits

Creating an asset protection entity like an asset protection trust, retirement account, or other account generally offers high protection against creditors and litigation. These forms of wealth management are specifically designed to prevent seizure by creditors, and as such are generally very effective in asset protection. They may also provide some secondary benefits as part of an estate plan. These benefits may impact not only the wealthy but anyone with assets that could be seized by creditors. 

Challenges

However, asset protection trusts and other accounts may require a higher level of legal understanding than something simpler, like a will or revocable trust. The legal restrictions surrounding asset protection are often stricter than they are for standard estate planning entities. As such, they may require more intensive work and knowledge to create and maintain. These tools also may not provide as many tax or estate planning benefits as a standard trust. 

Contact a California Estate Planning Attorney Today

Asset protection can help prevent extensive losses from financial emergencies or litigation, and can also help to supplement additional estate plans. However, California state laws may regulate the terms and boundaries of an asset protection trust. Understanding how these laws and statutes interact could help an individual create effective asset protection measures. Consider speaking with a California asset protection attorney from Wakefield Law Firm today by calling (949) 274-9975 for details.