Planning your estate is about more than deciding who gets what and how. It’s also about protecting your assets. Without a solid plan, your wealth could be at risk from lawsuits, creditors, or even taxes.
Estate planning and asset protection work together to protect your money, property, and valuables. These strategies allow your assets go to the right people and protect them from financial threats.
What’s the Difference between Estate Planning and Asset Protection?
Estate planning and asset protection aren't mutually exclusive concepts. Estate planning is the process of deciding how to handle and distribute your assets after you pass. It will include some standard services you may be familiar with like creating:
- wills
- asset protection trusts
- powers of attorney
- umbrella insurance
- businesses
Some aspect of estate planning is about creating structures and using the law to protect your existing assets. Strategies for estate planning protect assets by shielding your wealth from risks.
5 Effective Estate Planning and Asset Protection Strategies
There’s no need to complicate how to use estate planning to protect assets. These are some estate planning asset protection strategies that can put your mind at ease.
1. Set Up Asset Protection Trusts
Asset protection trusts are irrevocable trusts in the United States. Why? This type of trust in estate planning and asset protection has a built-in protection from creditors and lawsuits. These are trusts where the grantor can’t edit or revoke the assets put in the trust.
Transferring assets to an irrevocable trust removes them from your estate. This also means it’s a way of avoiding estate tax and probate for those assets. The trustees act are the beneficiaries, and you can dictate terms for how they can handle the assets.
2. Create a Limited Liability Company (LLC) for Family Limited Partnership (FLP)
An LLC or FLP is a legal entity that separates your personal finances from business liabilities. They protect you if someone sues your business, your home, savings, and other personal assets. They also have creditor protection for your assets. Creditors may obtain a charging order but can't seize the company's assets or force a sale.
LLCs are flexible in management and taxation. You can choose how to run the business and how to deal with taxes, which can provide financial advantages. In an FLP, family members own assets together. There are general partners who manage the assets and limited partners who have ownership but don't control daily decisions.
FLPs allow you to transfer ownership to younger family members, reducing estate taxes. You can gift limited partnership interests, often at discounted values, which lowers the taxable amount.
3. Make Use of Retirement Accounts
When you’re getting closer to retirement, you want to make sure you have a plan to help you ease into that phase of life. Retirement accounts like Roth IRAs and 401ks often have legal protections from creditors. Contributing as much as possible to these accounts builds your retirement fund and shields them from creditor claims.
4. Find Suitable Insurance Plans
Asset protection and estate planning is all about reducing risks. Naturally, insurance should be part of the plan. Life insurance payouts and annuities have creditor protection. The level of creditor protection varies by state, so it’s important to check local laws.
Life insurance policies provide beneficiaries with tax-free payouts after you pass away. Your loved ones will receive the full amount without deductions.
Also, you need to plan for long-term care as your health will naturally decline.
Long-term care is expensive and can quickly drain savings. Many life insurance policies offer optional riders. They allow you to use the policy’s death benefit to pay for long-term care expenses while you’re alive. This can cover costs like in-home care, assisted living, or nursing home services.
5. Use Gifting Strategically
Gifting assets to loved ones while you’re still alive can reduce your taxable estate. This helps cut estate taxes and ensures your wealth stays in your family. Charitable remainder trusts (CRTs) allow you to donate assets while still receiving income from them during your lifetime. But, it’s important to follow tax rules to avoid penalties.
Best Practices in Estate Planning for Asset Protection
You need a thoughtful and well-structured estate plan. Following best practices in estate planning for asset protection can help secure your wealth and avoid common pitfalls. Here’s what you should focus on:
1. Start Early
The sooner you start estate planning for asset protection, the better. Early planning gives you more options to use estate planning to protect your assets. It also allows you to adjust your plan as your financial situation or family circumstances change. It's never too early to establish a financial shield as you build your wealth.
2. Use a Combination of Tools and Strategies
A strong estate plan uses many tools, like wills, trusts, and powers of attorney, insurance and lots more. You should diversify these legal entities so you can use them to the full potential. Different tools like trusts and insurance serve different purposes, but they protect you in different ways. Combine these tools to ensure your plan covers all areas.
3. Update Your Plan Regularly
Your estate plan isn’t set in stone. Life changes—like a new child, a divorce, or a significant purchase—can affect your plan. Regular reviews ensure your plan stays up-to-date and effective.
4. Work with Professionals
Information about proper estate planning and asset protection is abundant. Yet, the expertise and experience to tailor and customize a plan for you is finite. An experienced estate planning attorney or financial advisor can guide you through the process. The right team can help you create strategies that follow the law and meet your goals.
Don’t Give Up Your Assets
Not having the right protections in place can feel like forfeiting your wealth. Lawsuits, creditors, taxes, settlements and inheritance mismanagement can build up. With a solid plan from the experts At Asset Preservation Wealth and Tax, you can create a plan that works for you.
Work with the right team today!
Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.
The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD # 175083.
