Asset protection planning is used to protect assets that would otherwise be at risk of lawsuits or at the risk of claims of creditors. Asset protection planning may involve preparing for the possibility of future lawsuits by rearranging the ownership of assets so that they are beyond the reach of potential creditors. In the past, planning to protect assets from the claims of creditors was almost exclusively done for high risk professionals, and asset protection often involved nothing more than shifting assets to the non-professional spouse. The situation has changed significantly in the past twenty years, as the increase in litigation and large jury awards has made everyone more creditor-conscious. If you have enough assets to require estate planning to avoid death taxes, then you probably have enough assets to require planning to protect them from lawsuits before death.
Life insurance benefits may be exempt property. Federal law provides that most creditors cannot reach the assets held by qualified retirement plans. This includes pension, profit sharing, and 401(k) plans. Self-employed plans and Individual Retirement Accounts may be protected from creditors depending upon your state's laws.
Personal Assets
Asset protection planning is considered to be both legal and ethical if it takes place before any event has occurred that could result in a claim against you. The time period allowing these transfers varies by state as well. If property is not exempt from your creditors, you may want to consider an outright transfer of the property to family members. Valuable assets may be transferred to a spouse or relative to help protect those particular assets from claims of potential creditors. If you wish to transfer an asset, in trust or otherwise, to obtain the creditor protection that might be available under law, you must irrevocably part with much of the direct ownership and control of that asset. Transferring the ownership of assets now can help protect them from creditors during your lifetime and from estate taxes at death. If you make significant transfers to your spouse, you may reduce your bargaining leverage in the event of your own divorce and property settlement. Transfers to non spouses can involve gift taxes owed by the donor.
As an alternative to directly transferring the property to family members, you could transfer assets into an irrevocable trust and retain no use and enjoyment of the trust property, instead limiting the use and enjoyment of the trust property to your immediate family members. The trust assets might then be safe from your creditors, depending on the elapsed time as above. This strategy can reduce federal gift and estate taxes and also protect the value of the residence from creditors where a homestead exemption is not available.
If structured properly, passing property to your children in trust can provide them with all of the benefits of property ownership without the burdens. Passing property to your children in trust also can preserve the property for future generations by protecting it from your children's creditors, including spouses, in the event of a divorce. As with protecting property from your creditors, your children must sacrifice some control over the trust property in order for it to be creditor-safe. If you are concerned with protecting a child from his or her own spendthrift tendencies, a discretionary trust that divests the child of most or all control over the trust property is a possible solution.
Intra-family transfers should not be made before considering all the ramifications and risks. The disadvantages include:
* your loss of control over the asset and any income that it might generate
* the new owner's exposure to potential creditors
* any gift tax consequences of the transfer
Business Assets
If you begin a business without incorporating it, then all of your personal and business assets will be at risk for all debts and claims against the business. This is also the case if two or more people run the business as a general partnership. To help protect your personal assets from the risks of the business, an asset protection form of ownership needs to be utilized. The choices available in most states include:
* a corporation
* limited partnership
* limited liability company
* limited liability partnership
* sub-chapter s organization
Please note that the asset protection provided by each of the above entities may be different depending on the state in which the entity was created.
Supplementary insurance is another strategy to protect you from the risks associated with businesses and professions, however, insurance policies have limits and exclusions.
* Policies may not pay a claim based upon the commission of an intentional act or one resulting in punitive damages.
* The amount of the claim may exceed the policy limits.
* The policy proceeds could be taxable depending on how you account for the premium.
Partnerships and Trusts
During the past few years, the family limited partnership has been put forth as an asset protection device. Asset protection trusts are another asset protection planning tool.
We at Merrimac Corp. Securities recommend that an attorney who specializes in these matters is consulted in designing your asset protection plan and preparing the appropriate documents.
The key components to protection planning are:
* Disability Insurance
* Medical Insurance
* Life Insurance
* Long-Term Care Insurance
* Liability Insurance Annuities
* Estate Planning
* Key person insurance
* Business continuation insurance
Accumulation Planning:
The next step is to prepare an Investment Policy Statement which incorporates, in one document, all of the client's goals, expectations, restrictions and performance measurement requirements.
Wealth accumulation is typically the chief concern of younger investors. Perhaps you're considering the purchase of a business or a second home. Maybe you're saving to send your grandson to college. No matter what your goal, the process of accumulating wealth requires time and planning. By focusing on your goals (such as funding a college education or purchasing larger home), wealth accumulation allows you to make sure your rate of saving and your investments are appropriate in terms of time frames, diversification, liquidity and risk. Here are some ways to begin:
* IRAs
* 401(k) and 403(b) plans
* Simplified Employee Pension (SEP) plans
* Savings Incentive Match Plan for Employees (SIMPLE)
* Defined benefit plans
* Money purchase plans
* Profit sharing plans
* Employee Stock Option Plans (ESOPs)
* Nonqualified retirement plans
* Cash value life insurance
* Non-qualified accounts (personal savings)
* Split-Dollar non qualified life insurance
Wealth Management Planning:
Wealth management planning's sole purpose is to provide trusted advise. It is creating investment, financial, and estate planning strategies that work together to enhance and protect your wealth, reflect your values, and meet your evolving needs. It is the belief that comprehensive wealth management is crucial to efficiently building, preserving, and transferring wealth.
There are a broad array of services to high net worth individuals, families, and institutions. We provide professional portfolio management, financial and estate planning advice, and wealth transfer service. Our core strength lies in our wealth management professionals, who have extensive industry experience and are committed to superior client service.
Lastly, wealth management is the sum of activities necessary to accumulate, protect, and transfer wealth. When you look at the sheer volume of choices you might have to make in your financial lifetimes, its clear that they are going to require some professional help. The wealth management approach in financial advice helps you make important decisions about investments, retirement, insurance, taxes, and transferring assets to heirs. We have made our infrastructure scalable to fit whatever model with which you are comfortable. You may choose to utilize some or all of our services. In either case, we are here to support you.
A complete wealth management plan is the basis for the successful pursuit of a client's personal and financial objectives. It includes:
* Investment strategies focused on consistent results.
* Access to the full range of equity and fixed income products needed to match a client's and family members' tolerance for volatility and need for principal growth.
* Management of non-investment risks, including protection against uninsured business and personal liabilities.
* Deferring and minimizing taxes, particularly federal and state income, gift, and estate taxes.
* Maximizing the usefulness of one's wealth to the surviving family and heirs, given the person's individual abilities and circumstances.
* Minimizing the fees and delay with transfers at death or asset management during a disability.
* Maximizing effective charitable giving.
* Appointing qualified representatives to act for one's own and the family's benefit when needed because of minority, disability, or death.
