Ethical asset protection is not about hiding assets from known creditors or the government and it is not an avenue to evade taxes. Rather, prudent planning takes into consideration the protection of one’s legacy and assets. At its heart, tax planning is a form of asset protection. The planning process includes consideration of the potential for future creditors, such as hospitals, plaintiffs in personal injury lawsuits, and ex-spouses.
Where appropriate and by the client passing assets in trust for the family (rather than simply giving them the assets), the client has a good start at asset protection. Where there is more property and the estate is larger and more complex, our firm will consider creating a trust in certain favorable states, such as Delaware, South Dakota, and Nevada, where the laws governing asset protection are far superior to the asset protection offered in California (where even inheritances can be susceptible to a judge’s determination as to what is “equitable” in a divorce).
Asset protection is more than creating trusts. Business entities including limited liability companies (LLCs), limited partnerships (LPs), and corporations are effective forms of asset protection. As a general rule, creditors of such entities are limited to the assets owned by such entities; creditors may not pursue the personal assets of the entity owners. To maintain this protection from liability, these entities must be created and operated correctly to maximize the asset protection shield. Our firm will recommend, where appropriate, establishing the business entity in states outside of California where good asset protection laws offer stronger protection for entities.
Our firm will integrate another asset protection tool – insurance. Our firm will discuss with the client whether the home(s) and vehicle(s) are adequately insured and where appropriate recommend an umbrella policy for excess and unforeseen liabilities.