Assets are good news and bad news.

The good news is that we have assets.

The bad news is that everyone wants our assets, including the taxman.

If we work hard to accumulate our assets, then we should also make an effort to protect our assets too. A good asset protection plan helps us keep our financial assets intact and reduces our stress so we can sleep at night. No one wants to think about negative events in the future. It is easy to put off our planning.

Negative events? Yes, they happen. Here are three common events where good pre-planned asset protection makes sense.

First, lawsuits. No one wants to be the recipient of a lawsuit. Few people will take the time to file a lawsuit when the defendant has no assets, but when we have assets, they won't hesitate.

Second, unplanned tax liabilities. Estate taxes, changes in tax laws, denied tax strategies and more can result in huge tax liabilities.

Third, business disasters. When unplanned disasters occur, then leases, suppliers, advertising, payroll, and other liabilities may remain.

Asset protection tip #1.

Act first. Later is ... too late.

We must create our veil of protection first, before an asset-threatening event. When a lawsuit or a taxable event occurs, then it is too late to arrange the protection. This is where the horror stories happen. This is when the legal fees and creditors can deflate the value of our estate's assets.

Too many people panic because after the asset-threatening event, it is too late to modify, hide, and protect the assets. A few hours of professional pre-planning could have prevented months and years of expensive litigation and grief.

For example, consider bankruptcy. A person may have a bankruptcy question about which assets are exempt. The answer? Here are just a few of the considerations:

Which state are you filing in? Each state may have a different list of properties that can be saved.

• What properties are protected in Chapter 7, and what properties are protected in Chapter 13?

• Do you have a choice between state exemptions and federal bankruptcy exemptions?

• Timing matters. How long have you resided in this state?

• Do you qualify for the Homestead Exemption?

Or, let's consider the inevitable event, death.

Wills, probate, trusts, and more are pre-planning tools that can save our loved ones' time, energy, and a lot of money. Of course, all these things must be done before death.

Or, when is the best time to have car insurance? Before an accident, of course.

Planning in advance removes potential complications. And, planning in advance is within our control. We can avoid many questions and potential surprises with careful planning.

Asset protection tip #2.

Use trusts.

This is one of the most common asset protection strategies. Not only do trusts remove our name as owners of the asset, but trusts benefits can also:

• Help keep assets out of probate upon death.

• Provide protection from personal creditors.

• Pass assets to our heirs without the hassle and expense of probate court.

As trusts come in all shapes and sizes, they can be a creative solution for asset protection. But of course, not the only solution. Some examples of the different types of trusts:

• Living trust.

• Irrevocable trust.

• Domestic asset protection trust.

• Offshore asset protection trust.

• Spousal lifetime access trust.

• Charitable remainder trust.

Each type of trust has different benefits and drawbacks that should be discussed with a professional before setting one up. Trusts may be good asset conservation strategies for events such as failed marriages, creditor judgments, or other unplanned future situations.

Asset protection tip #3.

Creating an Entity that has limited liability, such as a corporation or LLC.

This is a common strategy, especially for active business owners. By incorporating, we create a barrier between our personal assets and any liability associated with the company. This is why professional service providers such as lawyers and doctors often incorporate their businesses.

The downside? Entities face government oversight and must keep extensive detailed records of business activities.

Plus, an entity might not protect you from your own personal actions. For example, you are driving a corporate owned car and have an at fault accident. You are still personally liable because you were the one at fault. (However, if an employee had an at fault accident, you would not have any personal liability.
For individuals, incorporation can provide protection from creditors and lawsuits.

But there are drawbacks too.

For instance, we have to follow corporate formalities and procedures such as holding annual meetings and keeping detailed minutes.

Asset protection tip #4.

Use insurance.

Insurance is an excellent way to protect our assets and our loved ones. Health insurance, disability insurance, long-term care insurance, property insurance, automobile insurance, umbrella insurance, and more are all ways to protect what we have worked so hard to accumulate.

The biggest risks are from personal liability. We want enough liability coverage to provide an incentive to settle within the policy’s limits. We would prefer any insurance claims to be settled by the insurance companies, not by the judicial system. Exorbitant awards are rare, but we don't want to be a statistic.

Asset protection tip #5.

Life insurance.

There is an old saying, "There are only two certainties in life: death and taxes." Maybe they will learn how to extend life in the future, but taxes will always be with us.

When the big estate tax bill comes, the government doesn't want assets, they want cash. The worst asset planning strategy is to sell assets at distressed prices to raise the immediate case required by the taxman.

Life insurance solves this problem, especially when most of the premiums can be self-funded with cash-value life plans such as whole life and universal life insurance. These plans build up cash surrender value, interest or dividends, and these funds can be borrowed against to self-fund future premiums.

Life insurance is used for portfolio stability and for creditor protection. The cash surrender value is covered by various state exemption laws. Exempt assets are normally protected even in bankruptcy proceedings.

An additional layer of protection can be provided by using an irrevocable life insurance trust. This can be discussed with your legal and financial advisor team.

Asset protection tip #6.

Offshore assets.

These exotic tax and legal protection plans sound exciting, but the reality is more difficult. The biggest concerns about these offshore plans are:

• Will I lose control of these assets?

• How hard will these offshore entities be to manage?

• Will these offshore plans hold up to an audit in the future?

• What happens when the current tax laws change?

• Can my assets that are within the United States be protected?

There may be some short-term tax advantages, but the long-term stability and control of our assets should be our primary concern. We want to be able to sleep at night, not worrying about the paperwork and credibility of an offshore entity.

These trusts are normally used by the wealthy as they are expensive to create and maintain.

Asset protection tip #7.

Retirement accounts.

There is an entangled maze of protections and exceptions. We can expect some protection, but it gets complicated.

Employee Retirement Income Security Act (ERISA) plans are usually protected. These are plans set by employers and must comply with federal rules. A common example would be a 401k plan. Sometimes these plans can include medical and other health benefits.

A guideline? These retirement plans are generally safe from creditors, bankruptcy, and civil lawsuits. The protection may be pierced by the IRS, criminal fines, or an ex-spouse.

What about retirement plans that are not Employee Retirement Income Security Act (ERISA)? Plans such as a traditional IRA or a Roth IRA? Again, a lot of protection, but not as much protection as an ERISA plan.

Asset protection tip #8.

Tenancy by the entirety.

A Tenancy by the Entirety allows spouses to own property together as a single legal entity. Under a Tenancy by the Entirety, creditors of an individual spouse may not attach and sell the interest of a debtor spouse. Only creditors of the couple may attach and sell the interest in the property owned by Tenancy by the Entirety.

Please note. Tenancy by the Entirety protection exists only while both spouses are alive.

The type of property that can be protected by Tenancy by the Entirety varies based on state law.

What is the proper asset protection tool for your situation?

So many options. So many rules and regulations. It can get complicated, but professionals can help us narrow our choices for our particular situations.

The good news is that we are planning in advance. This simplifies the possible outcomes and will give us better protection.

When it comes to asset protection, there are many options available. The best approach is to consult with a team of professionals to determine the best strategy for your particular situation. With careful planning, we can set up better protection for our assets from creditors, bankruptcy, and other legal proceedings.