Asset protection- Vs Estate/Financial Planning: ARTICLE

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How Does Asset Protection Differ from Estate and Financial Planning
by Shane Flait (2011)


You may hear the mention of asset protection when you’re discussing estate planning, but realize that asset protection has a distinctly different goal.  Let’s consider what each does and doesn’t do to clear our conceptions of each.


You set up asset protection strategies to protect your assets from the threat of possible or unknown legal suits you may face now and in the future. These suits can be instigated by creditors, a marriage partner, or strangers seeking access to your ‘deep pocket’ wealth.


Estate planning, on the other hand, deals with arranging - in compliance with your wishes - how your assets will be used in the event of your illness or incapacity; and how they’ll be transferred during your life and at your death to your chosen beneficiaries. General planning considerations include how to legally hold some of your assets to enhance efficiency in the transfer process and minimization of estate and gift taxes. Important, too, is how to hold those assets financially – such as under qualified plans, IRAs, and the like.


Financial planning involves arranging your saving and investment programs to achieve certain goals like buying a car, paying for a college education, buying a house, or working your way into financial independence. It’s generally a younger person’s approach to planning for the future.


Both estate and financial planning do include some ‘soft’ asset protection. IRA and other qualified plans do carry some protection from typical creditors. And various state homestead laws protect a limited amount of home-related wealth.       


But asset protection’s main concern is protection of assets. It’s not for avoiding taxes and must, formally, be within legal bounds. Strategies you can use for holding ‘protected’ assets may produce no ‘taxable’ earnings, but that’s a side issue.


The ‘hard’ asset protection strategies involve removing your assets from your control and often from you as a known beneficiary. The intent here is that if no one knows what wealth you may have access to, then you can’t be ordered to turn that wealth over to someone else.


Both estate planning and asset protection require comprehensive planning using appropriate tools to cover a variety of circumstances. So, just as making a will doesn’t cover all your estate planning, so setting-up some limited liability company won’t cover all your asset protection issues.


Your will can be challenged – and the probate process can expose you to such challenges. And, there are many ways for creditors to seize company assets – perhaps through faulty titling or the use of the wrong entity for protection.


You must continually update strategies and circumstance pertinent to both asset protection and estate planning. That’s because family situations and beneficiaries change, laws change, the IRS Code changes, and economic conditions change.


Asset planning has become more important over the years because divorce laws have become more unfair and computers and the internet have made awareness of who we are and what we own easier to investigate. This makes each of us more vulnerable to unfair or contrived lawsuits. 


Making yourself aware of your assets’ vulnerability to unfair lawsuits is always important when you do your financial and estate planning. Weighing the extent of this vulnerability against other concerns while doing your planning is wise. You should always try not to be blindsided so you’re left in an unrecoverable position.






Shane Flait is a writer and educator