What is “asset protection” and why it applies to more than just the super wealthy
“Asset protection” is for almost everyone, regardless of your age or financial condition. While this is a phrase that often makes us think of:
- Super wealthy
- Hiding assets
- Doing something wrong
While sometimes those thoughts are correct, they are not what my financial protection firm means when we use the expression “asset protection.” Let me explain.
Asset protection simply means protecting your assets from creditors and predators who have no right to your assets.
This includes protecting assets from being burned up in long term care — we use asset protection to qualify for Medicaid (nursing home care) and VA Pension (Aid & Attendance) as well to protect from other creditors and predators.
Here’s the simple rule of asset protection:
Whatever assets you have access to in order to use for your benefit, so do your creditors and predators.
Let’s break this down.
What are assets?
Anything you own. This includes:
- Your house (read our article on the Home Legacy Trust which protects your home)
- Mutual funds
- Investment properties
- Vacation homes
What does access mean?
Do you have the ability to get to the assets?
Do you have the ability to sell the assets?
Do you have the ability to transfer the assets?
What does “to use for your benefit” mean?
But it is not just access. It is access to your “stuff” that you can use for your own benefit.
You see, if you are the trustee of a trust, but you have no right to use it for yourself, then you have access but that is normally not enough to allow creditors and predators to get to your stuff.
Let’s use another example.
If Bob has a $100,000 in the bank, then does he have access to it?
Can he use it for his benefit?
Absolutely. It is his money so he can use it for himself.
Well, this means his creditors and predators can get to it also.
So there is no asset protection on this money.
But what if Bob puts that money in a trust that he cannot use for his own benefit. It can only be used to benefit his children at Bob’s sole discretion as the trustee.
Does Bob have access?
Yes he is the trustee so he can pull the money out.
But does he have access to use it for his benefit?
Nope. Only for his kids.
So the money is protected from Bob’s creditors and predators.
Who are my creditors?
These are not current creditors or folks who are suing you.
Instead we are talking about creditors in the future. They won’t have a claim to your assets that are properly protected.
Who are my predators?
Here is a list of them:
- Divorce by your spouse (or your future spouse)
- Leaving money to your children and then they get divorced
- Medicaid and nursing homes
- Long term care costs
- Lawsuits related to car wrecks, business deals, etc.
Is this legal?
There are rules we follow but as long as we follow the rules then asset protection is a legitimate strategy. The same as buying insurance (which is almost always a good idea) to protect your assets.
It is not a matter of:
Should I do asset protection or buy insurance?
Instead it is — Yes I should do asset protection. Yes I should have the proper type and amount of insurance.
Does this involve hiding my assets?
Asset protection normally involves using the right types of legal trusts so that the ownership of the asset (house, stocks, investments, etc) is now held by the trust. The trust owns the asset.
But you have whatever amount of control and access the law allows. Remember that whatever control and access to get the asset back to you means your creditors and predators have the same level of control and access to the assets.
We don’t hide the assets. We are very upfront about where the assets are — no longer in your name but in the name of a properly designed and funded trust.
What should I do next?
Take a look at your assets. List them out.
Are they protected?
All of them? Any of them?
Do you have any concern about lawsuits? Creditors? Divorce? Long term care costs?
If you have no concerns, and if that is justified, then there is nothing to do.
But if you have concerns or questions, and you live in Alabama, give us a call at 205-879-2447 or fill out our contact page here and we’ll get back with you so we can do an asset protection audit and help you understand your options.