Most people think that estate planning just involves making a last will. Some people see the value in a living will that protects them if they become medically incapacitated. Far fewer people understand how valuable asset protection planning is.
Often a part of retirement or estate planning, asset protection planning involves someone making strategic changes to their ownership of assets for how they hold their property to protect those assets from claims by creditors, the government or other people.
Taxation inspires some people to try asset protection planning
The property that you want to leave for the people you love could wind up severely diminished by taxes. Estates worth millions of dollars could be subject to estate taxes based on the value of the estate. Depending on where your heirs live, they might also have to pay inheritance taxes.
Asset protection planning often involves high-asset individuals using major assets like real estate to fund a trust or creating a limited family partnership. Putting major assets into a trust or sharing ownership with others can mean they won’t go through probate as part of an estate, which will eliminate the risk of inheritance or estate taxes in some cases.
The risk of creditor claims over debts can inspire others
When you die, your debts don’t just die with you. Your creditors still have the right to bring a claim against your estate. The executor in charge of your estate has a legal obligation to pay your outstanding debts before they distribute your property to your family members.
Even if they have to sell everything that you owned to pay off your credit cards and medical debts, they will have to do so. That might mean that there is nothing left for your children and the other people that you love. Making strategic gifts, arranging for assets to transfer to others immediately on your desk or moving them into a trust can all potentially protect your property from creditors.
These moves can also benefit you while you are still alive by preventing creditors from seizing your property or forcing you to sell it. When you understand why people decide to try asset protection planning, you can better determine if it is necessary for you.