Asset protection planning and strategy is best managed with the trusted eye of an experienced attorney specializing in asset protection. In recent years, this topic has become increasingly important to business owners, e.g. entrepreneurs avoiding risks from third-party creditors, high network individuals concerned with risks that are not “judgment proof” and individuals who simply want to sleep well at night.

While a CPA can advise on the value of asset protection planning, attorneys specializing in asset protection should prepare and implement the strategy. This blog is written to bring an awareness of the importance to reduce financial risks with asset protection.

What are effective strategies to protect assets? Standard strategies include retirement plans including ERISAs or in some state an IRA, third party trusts for family members, domestic asset protection trust, family limited partnerships and capital restructuring. Capital restructuring includes equity distributions, holding companies, family secured loans, and multiple LLC structures.

Asset protection strategies can be as simple as distributing excess cash from your business before any risks occur, i.e. asset distribution. If you have excess cash and high AAA in your S-Corporation, the benefits of cash distributions to lower asset exposure inside the business is always advisable. Any entrepreneur who has significant debt risk, i.e. bank mortgages, should take steps with asset protection. Does your wife really want your dinner plates applied to bank collateral? Paying an attorney to modify loan agreements before signing is always advised. A few hundred of legal fees upfront is a small cost to make life easier should the driving horse say get a discouraging limp.

While asset protection is complex enough to take an entire semester at grad school, applying the concepts only require a call to an experienced attorney. Importantly, asset protection must occur before you are aware of specific creditor closure risks or insolvency risk. Transfers made with actual intent to hinder, delay or defraud past or foreseeable creditors is a fraudulent conveyance, and subject to claw-back provisions.

You need an experienced attorney to counsel you on secure steps to conveniently reduce those risks and protect assets with say a domestic asset protection trusts. A DAPT can have various interests: i) income interests, ii) maintenance, education, support, health care interests, iii) discretionary interests. Trustees can be banks or say brother-in-laws. Most of these trusts are grantor trusts, with the income passing through to individuals 1040s. Your attorney should plan the strategy for your trust if you choose a trust as an asset protection plan.

The main goal of asset protection is to compartmentalize risk; while insurance remains a primary defense. Compartmentalize risks in a real estate business, can be as simple a multiple LLCs for investment assets, e.g. one LLC per real estate parcel vs. all parcels in one LLC.

Owning real estate for your business in an entity segregated from the business operations is an asset protection strategy, along with where you place your debt. Always place your debt where your biggest financial risks reside, i.e. operating risks from business activity.

Summarized: this blog is not be construed as tax or legal advice. It simply to provide an awareness of simple steps towards asset protection that can prevent and contain future financial tribulations that often cannot be easily controlled. A specialist attorney will help you prepare “judgment proof” strategies that will work for your specific situation. If you need a referral to a trusted attorney, talk to your CPA.