What are assets?
Assets are resources with economic value that individuals or a corporation own or controls. There is an expectation that assets will provide a future benefit. Assets can include fixed, short-term, and intangible assets. Financial investments are also considered assets. Examples of assets may include the following:
- Real estate (e.g., homes, apartments, business buildings)
- Bank accounts
- Retirement plans (e.g., 401(k))
What is Asset protection?
Asset protection is part of financial planning meant to protect your assets from legal claims filed against you. This can include litigants filing lawsuits and creditors. Creditors can come after your bank accounts, properties, businesses, personal residence, investment accounts and properties. The ultimate aim of asset protection is to maintain your estate and allow you to pass it on to your desired beneficiaries or heirs. This will preserve your wealth and assets even after your passing.
How can I lose my assets?
There are many ways you may lose your assets. There are some more obvious ways of losing your assets but some more subtle ways that may need the aid of your lawyer to delineate and plan for. Below are some examples of ways individuals may lose their hard-earned assets.
Divorce: One of the most common ways to lose your assets is by obtaining a divorce. If no agreement states how you will divide your assets in a divorce, then your assets may be especially at risk. This can also occur when you pass to one of your beneficiaries if they also undergo a divorce. For instance, if proper safeguards were not placed earlier, a property you provide to one of your beneficiaries may be split in half and given to their ex-spouse during a divorce.
If you are at risk of many malpractice lawsuits, maybe because of your work, it is important to have some asset protection. Small business owners should also strongly consider protecting their assets against bankruptcy. Insurance is often not enough as it only covers part of what you will lose.
Beneficiaries may put your assets at risk either by overspending or through no fault of their own. Creditors or predators may seek out their inheritance for whatever reason. The good news is that by taking the initiative and just a little more effort in estate planning, you can protect your assets even after you pass, which goes to your beneficiaries.
Any person that owes significant amounts of money to creditors put their assets at risk if strategic action is not taken in advance. Asset planning is very important in risk management, and you can avoid losing your hard earned belongings through just some careful planning.
What are the benefits of asset protection trusts?
There are many potential benefits from asset protection trusts. These include those that are listed below.
Protect Assets from Lawsuits and Creditors
- Because it is a separate entity from the creator, it cannot be taken to fulfill the creator's obligations. See below for additional information.
Safeguards assets for beneficiaries
- You can prevent creditors or predators from removing funds from the trust in the case for your beneficiaries assigned to the trust.
- It's not filed with the state and instead an internal agreement drawn up by an attorney. Except with the IRS, there is no public record of it.
- In specific circumstances, an asset protection trust can eliminate or reduce the requirements of state income taxes.
Flexibility and control
- You can assign who is the beneficiary and the trustee of the trust. The creator can also adjust who occupies these roles.
What are some asset protection laws in New York?
All properties that are valued at $75,000 to $150,000 is protected from creditors.
What are some ways to protect my assets?
Outside of the legal protections afforded to you by the state, you should highly consider taking additional action to protect assets, especially those not covered by New York law.
A trust is a major way to protect your assets. It is an agreement between the creator and trustee. The trustee manages the assets included in the trust on behalf of a third party you have selected who directly benefits from it, your beneficiaries.
A popular way to protect your assets in New York is to form an irrevocable trust. This trust cannot be changed or removed. When you establish this trust, you agree to let go of your control over this financial property. The control is given to a trustee who is legally responsible for managing the trust. If a creditor files a lawsuit against you, the asset is no longer considered yours and will be protected from them. An irrevocable trust is different from a revocable trust in that it can’t be changed without a court order or the approval of all the beneficiaries of the trust. In New York, it is important to note that revocable trusts and self-settled irrevocable trusts (where you are listed as one of the beneficiaries) are NOT protected from creditor claims against the creator of the trust. The irrevocable trust must be meant for beneficiaries other than yourself. However, in New York, all property held within a trust created by someone other than the beneficiary is beyond the reach of the beneficiary’s creditor. So, for instance, you have a daughter Elizabeth. You name her the beneficiary of the trust you created. Creditors seek payment from Elizabeth for debts owed after she ended her business. They cannot take the money from the trust you’ve made forcefully to repay her debt.
Foreign asset protection trust
Another trust you can utilize to protect your assets from creditors is the foreign asset protection trust. This trust is also referred to as an offshore trust. It is established in a different country and has some pros and cons. It provides excellent protection over the assets included. The assets are governed by the laws of the territory it is located. This protects the trust from any U.S. court-ordered seizures. The downside is that you will need to familiarize yourself with the foreign territories' laws and regulations. It may also take more time and be more expensive to make initially. If the territory undergoes any economic or political trouble, your assets in the trust may be at risk as well.
Yet another trust type is a discretionary trust. This trust is created by someone other than the beneficiary and offers the greatest protection for trust assets in New York state. The trustee has complete control over the distribution, or lack thereof, of the trust assets to or for the benefit of any beneficiary. So in other words, the trustee can decide whether to distribute, when to distribute and who will receive the trust assets amongst the beneficiaries. The goal of a discretionary trust is to make it so that the beneficiaries cannot demand or enforce distribution unless the trustee abused their power. This trust type is also protected from the beneficiary’s creditors.
Obtain additional expert advice on asset protection
Asset protection can be a complex field to navigate with evolving laws and regulations. In particular, the laws for New York asset protection can be rather complex. Hiring an expert can help ensure that your financial protection strategy is satisfactory and preserve your wealth through retirement and legacy.