You should take a comprehensive approach to your financial endeavors. Of course, the first priority is to accumulate resources, but you should also take the appropriate steps to protect what you have earned.
In this post, we will look at a few different types of asset protection to give you some food for thought.
Small Business Owners
If you own a small business and you are a sole proprietor, your personal property would be vulnerable if your business debts become overwhelming. The same thing would be true if a different type of legal action is taken against your business.
You can establish a limited liability company (LLC) to create a shield of separation between your business and your personal interests. Generally speaking, your assets would be protected if your business is sued for some reason.
One exception would be a situation where you injure someone through your direct actions while you are on the job. Under those circumstances, you could potentially face personal liability.
Your business and its property would be protected if you are personally sued unless a court issues a charging order. You do have to avoid fraudulent conveyances: you cannot use a limited liability company to shield assets after you are aware of the fact that you are being sued.
A family limited partnership (FLP) is another possibility. To explain through the use of an example, let’s say that you own a restaurant, and you convey it into a family limited partnership.
You would make all decisions as the general partner, and family members that you add would be limited partners. If someone files a lawsuit because they are injured in the restaurant, the personal property that is owned by the individual partners would be protected.
To go a step further, if you own an apartment building and a restaurant, you can put each property into a separate family limited partnership. The apartment building would be protected if a lawsuit is filed against the FLP that owns the restaurant.
On the flipside of the coin, if a partner is sued, the property is held by the partnerships would be protected. In addition to the asset protection benefit, an FLP can facilitate asset transfers at a transfer tax discount.
Personal Asset Protection
You can potentially protect assets from future creditors if you convey resources into a self-settled asset protection trust. This type of trust is alternately referred to as the domestic asset protection trust.
When you fund the trust, you would no longer have access to the principal, and you would designate a trustee that resides in the state where the trust is being established. The trustee could distribute assets to you or a beneficiary of your choosing at their discretion.
Assets in the trust would be protected from most types of creditors, but there are some exceptions. If you own back child support or alimony, the assets would be in play, and they would not be protected from unpaid tax responsibilities or court orders.
These trusts are recognized in 15 states, but Illinois is not one of them. In spite of this, you could choose to establish a self-settled asset protection trust in a state that does recognize them.
Nursing Home Asset Protection
Most senior citizens will need some form of living assistance, and more than 30 percent of seniors will require nursing home care. These facilities are quite expensive, and Medicare does not pay for long-term custodial care.
Medicaid will cover a stay in a nursing home, and there is a Medicaid waiver that will pick up the tab for in-home care. Since it is a need-based program, you cannot qualify if you have significant assets in your name.
As a response, you can fund an irrevocable Medicaid trust. You would not be able to reach the principal, but you could accept distributions of the trust’s income until you apply for Medicaid.
If and when you submit your application, the assets would not count as long as you fund the trust at least 60 months before you submit your application.
Remarriage Asset Protection
If you have a significant store of resources and you are getting remarried, you may not want to enter into a total financial partnership with your new spouse. Under these circumstances, you can create a premarital agreement that spells out the terms.
Some people that are in this position want to protect the inheritances that they would like to leave to their children. A qualified terminable interest property trust can be a solution.
If the grantor predeceases their spouse, the surviving spouse would receive distributions of the trust’s earnings for the rest of their life, and they could use property that is owned by the trust. For example, they can live in a home that is technically owned by the trust.
They would be comfortable, but they would not be able to access the principal or change the terms. After their passing, the grantor’s children would inherit the remainder that is left in the trust.
We Are Here to Help!
Our doors are open if you are ready to work with a Naperville or North Aurora, IL estate planning lawyer to put a plan in place. You can send us a message to request a consultation appointment, and we can be reached by phone at 630-568-8611.
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