One of the primary goals for establishing an estate plan is to ensure that your client’s assets ultimately transfer to their heirs and other intended parties. For individuals engaged in business or with sizeable wealth, an asset protection plan could be essential in reaching that goal. A carefully crafted plan can help clients preserve their tangible property and other assets from creditor threats.
To establish a thorough asset protection plan, you must carefully consider your client’s estate and potential risk factors. Let’s take a closer look at how to create a comprehensive estate plan that protects your client’s valuable assets.
Analyze Risk
Asset protection begins with a thorough analysis of the risk factors that may impose liability on your client. Even if your client is not among the super-wealthy, he or she may be affected by litigation, divorce, or an accident that exceeds liability coverage. During your initial consultation, be on the lookout for potential risks, including:
- Employee actions (i.e. wrongful termination, discrimination)
- Failing businesses or investments
- Malpractice actions
- Industry-specific business risks (i.e. design defects, tenant slip-and-falls)
- Household employees/contractors
- Home visitors (i.e. injuries to others caused by a trampoline, swimming pool, tree house, or other potentially hazardous household item or feature)
- Pet claims (comprises more than ⅓ of homeowner liability claims)
- Vicarious liability for children
- Miscellaneous fines or penalties
Incorporate an Insurance Policy
A liability policy or professional insurance is typically your client’s first line of defense against claims. When combined, your client’s insurance and asset protection plan act as a deterrent to opportunists who might be in search of someone with deep pockets. In the event of an incident, the insurance company steps in to settle or defend against the claim while you keep your client’s most valuable assets out of reach to ensure that he or she won’t suffer significant losses if a lawsuit occurs.
Evaluate Assets
Failure to adequately plan can cause family tension and, without detailed estate planning documents in place, disagreements can turn into costly litigation. Comprehensive estate planning can protect family assets and mitigate confusion as loved ones age and pass.
Estate planning professionals should be aware of the different nuances of state regulations that might alter an estate plan. Many states exempt certain assets from being reached by creditors, which may include:
- Property held jointly with a spouse as tenants by the entirety
- A primary residence (the “homestead”)
- The cash value of life insurance policies
- Retirement accounts
- Annuities
Estate planning is an important step in protecting assets, and family estate planning can reduce client confusion and conflict. Be sure clients understand the role this process has in planning for the future, and how taking the proper legal precautions can reduce stress, and save money, down the line.
Each case is different, and it is the estate planner’s job to recognize client need to best cater estate planning services to the individual. Some circumstances — like planning for a business — call for special accommodations. You have to consider several options when protecting a client’s business assets, so be sure to look at each circumstance from several angles.
Consider Business Needs
A business owner can protect business-related assets by operating the business through a recognized business entity such as a corporation, partnership, or limited liability company.
Many professionals like doctors, lawyers, corporate executives, and real estate investors operate in an environment of high risk and therefore, are prone to intense scrutiny. They may be interested in ways to reduce their financial profile and lessen their liability potential.
Regardless of the options you choose for your clients, remember that timing is key. No matter how well crafted, putting an asset protection plan into place after a claim arises is usually ineffective in shielding your clients’ assets from creditors or litigants. If a transfer of assets is done with the intent to hinder, delay, or otherwise defraud an existing or potential creditor in the wake of a claim, it can be overturned. Anyone who assisted in making the fraudulent transfer could be held liable for the creditor’s attorney fees, or be subject to claims of professional misconduct or malpractice.
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