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People often work hard and long to have the assets they own without realizing that they can lose their property in just a snap of a finger. The bitter truth that comes with assets is the more assets you have earned for yourself, the more you become a target. The assets that you own can be lost easily in a lawsuit when declared bankrupt or in a case where creditors come to claim payment of their debt in the form of the property. However, there are laws put in place to ensure that your assets are protected and also laws that can shield your savings.
Protecting your assets is a legal way to protect your property from any claims that may arise. Asset protection might be very complex and therefore require the expertise of a qualified attorney to ensure they are safe. It is essential to know that each category of assets has different requirements to ensure they are well-protected.
Table of Contents
Real Estate Protection
Many people think you can insulate yourself from a prospective lawsuit by putting your real estate holdings into a land trust with you as the named beneficiary. This is not true since land trusts only do not protect the real estate since they can be revoked, and therefore you could easily be liable if your property is left in a land trust and a lawsuit made.
However, land trusts are used by investors to provide a provisional step in protecting their real estate assets hence making them more appealing to most investors since they provide both simplicity and functionality. The main disadvantage of land trusts is that they do not provide asset protection. If a lawsuit is filed against a single beneficiary, the courts may force the beneficiary to change the terms of the trust, benefiting the creditor.
Homestead Protection
There are various ways which you can use to protect your home, although some of them may be very costly. Here in the USA, most of these laws may vary from one place to the other. Some of the three main ways include:
- Maximizing the homestead exemption
This is an exemption that is available in several states in the USA. The exemption protects a given value of a person’s home against a creditor or even bankruptcy. When a creditor sues you and forcibly ends up selling your home, they get what is left after selling costs, the mortgage balance, and your homestead exemption amount.
- Protecting your home with tenancy by the entirety
If the state you live in allows you to title your personal residence as tenancy by the entirety, then you can quickly dive in and take up that opportunity. The tenancy by entirety offers you unique protection since it holds that if a husband gets into a terrible lawsuit, it’s not fair that the wife loses the house when the lawsuit had nothing to do with her or vice versa.
- Implementation of an equity stripping plan
The equity stripping plan is a practice where you put a mortgage on your home and then remove the equity by replacing it with a loan. This makes your home far less appealing to a potential creditor looking to seize it to satisfy a judgment.
Asset Protection Trusts
For a long time, many wealthy people have opted to use offshore trusts such as the Cook Islands and Nevis to protect their assets from potential creditors. However, these trusts are seen to be expensive since nowadays, several states allow Asset Protection Trusts even if you aren’t a resident of the state. Some of these states include Nevada, South Dakota, Delaware, and Rhode Island. With these trusts, you are allowed to shield your children’s assets.
Before you decide to use any of these services, it is always crucial to do extensive research, mainly contacting the Better Business Bureau (BBB) and, before taking any of the steps outlined in this article, consult with an attorney who is familiar with your state’s laws and an expert in the field of asset protection. Most importantly, do not wait until a judgment is made against you. It may be too late by then, and the courts may rule that you engaged in a “dishonest transfer” to avoid meeting your obligations.
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