A key concern for many estate planning clients is how to preserve their wealth. Surely, no one wants to see a lifetime of hard work depleted by estate taxes, medical crises, and creditors’ claims. Regardless of how careful you are with your money, it is crucial to consider asset protection as part of a comprehensive estate planning strategy. This article is a brief overview of the tools estate planners can use to protect their assets, their loved ones, and their legacies.
Estate Planning Is for Everyone
A common misconception is that estate planning is only for wealthy individuals. At its most basic level, however, estate planning is the process for establishing how your assets and affairs will be managed when you die or if you become incapacitated. In other words, everyone needs an estate plan. Although many individuals associate estate planning with a last will and testament, nearly two-thirds of adults in the U.S. do not even have a will.
While a will can ensure that your last wishes are carried out, many individuals and businesses can achieve greater control through a trust-based estate plan. Moreover, a good estate plan would not only consider what you leave behind, but would also leave your affairs in order in the event of incapacity by naming trusted individuals to manage your affairs and coordinate your medical care if you are unable to do so yourself.
In short, a well-conceived estate plan considers risks to your assets and effectively safeguards those assets. This raises two fundamental questions for estate planners: what are the potential risks to my assets, and what measures can I take to preserve my wealth?
How to Manage Risks to Your Estate Assets
Protecting your assets starts with identifying threats that could erode your wealth, not only while you’re accumulating assets but also after you die. Of course, confronting your mortality can be overwhelming, but it is crucial to protect your assets from the expected and the unexpected; it’s also the responsible thing to do.
To protect your assets and ensure that your legacy will endure, you must be aware of a wide variety of risks, such as:
- Lawsuits against you or your business
- Unexpected medical expenses
- Personal or business bankruptcy
- Creditor claims
- Divorce agreements (e.g. property division, spousal support, child support)
- State and federal estate taxes (present exemption amounts notwithstanding)
- Loved ones with special needs
- Irresponsible heirs
This is where an adept estate planning attorney comes in. By understanding your objectives and helping to assess all the potential risks to your assets, your trust and estate lawyer can help to safeguard your interests, your family, and your future.
Wealth Preservation 101
While everyone has unique circumstances and different estate planning objectives, we are all subject to the fickle hand of fate. Let’s face it: anyone can suffer a serious illness or be injured in an accident at any time. Your property is in a similar situation. Unexpected damages from a fire, flood, and other damaging events can harm your ability to ensure your legacy is financially secure. As such, your asset protection toolbox should include:
A common misconception is that estate planning is only for wealthy individuals. At its most basic level, however, estate planning is the process for establishing how your assets and affairs will be managed when you die or if you become incapacitated.
Adequate insurance coverage
Whether you have business interests or own a home, it is crucial to have the right amount of insurance coverage. While business owners should have, at a minimum, general liability insurance, individuals must have adequate automobile and homeowner’s insurance to protect their property against damages and/or civil lawsuits.
While a will is the most basic estate planning tool for distributing your assets, and the only way to designate guardians for your minor children, many individuals can benefit from establishing trusts. A revocable living trust is one that takes ownership of your property but allows you to continue managing it during your lifetime. Unlike a will, a living trust is not required to go through probate; a trust also best allocates your assets to prevent avoidable tax liabilities. Additionally, a variety of irrevocable trusts can be established to provide for a loved one with special needs, protect a prodigal heir from creditors’ claims, leave a charitable legacy, and achieve other important objectives.
The proper legal structure for your business
Whether you run a family business or a professional practice, it is crucial to segregate your personal assets from your business assets and ensure that the former are protected from civil lawsuits and other claims against the business. Business structures such as a Limited Liability Company (LLC), partnership, or an S or C Corporation provide varying degrees of asset protection. Beyond choosing the right business formation, it is also critically important to create a business succession plan as part of a comprehensive estate planning strategy.
Finally, it is worth noting that certain assets pass outside of your estate, some of which have built-in legal protections against bankruptcy and other risks. Certain retirement planning tools, for example, such as Individual Retirement Accounts and 401(k)s, may be exempt from bankruptcy liquidation and other legal claims. Ultimately, leveraging all the wealth preservation tools at your disposal requires working with your financial advisors and estate planning attorney.
No matter your financial status or the care you’ve exercised in handling your money, having a well-designed estate plan is the best way to protect your assets and your loved ones from assorted threats and risks. Whether you only require a simple will or can benefit from a trust-based estate plan, the best decision you can make to secure your future is to enlist the services of a trustworthy estate planning attorney.
Attorney Tripp Wiles is the founder of Wiles Law Firm, LLC. Tripp was born in Charleston, South Carolina. He graduated from The Citadel with a B.A. in Political Science and holds a M.A. from Hawaii Pacific University in Diplomacy and Military Studies. Tripp earned his Juris Doctorate from the University of Memphis Cecil C. Humphreys School of Law. Over the past decade Tripp has assisted hundreds of individuals in protecting their families and preserving their legacies through customized estate plans. Tripp enjoys spending time with his wife and their three children.