A well thought out estate plan should do much more than simply create a roadmap for the distribution of your estate assets when you are gone. In order to ensure that there are assets left to distribute when you are gone, your plan should also focus on protecting and growing your assets while you are alive as well. To do that, asset protection should be included as a primary objective within your plan. As is always the case, the best way to be certain that your assets are properly protected is to work closely with an experienced estate planning attorney when you create your plan. It may also be beneficial for you to learn some of the most common asset protection tips.
Understand the Risks
Protecting your assets starts with understanding that they are at risk because many people are not even aware of the various ways in which their assets could be at risk. Over the course of a lifetime, the average person faces numerous potential threats to his/her assets, including:
- Divorce – your own divorce can clearly put your assets at risk; however, so can the divorce of a child, or other beneficiary. Unless you take steps to protect them, your assets could wind up in the hands of an ex son-in-law/daughter-in-law as the result of a divorce.
- Creditors – creditors, yours and those of a beneficiary, are probably the most well-known threat to your assets.
- Medicaid – how can Medicaid threaten your assets? By requiring you to “spend-down” your assets in order to qualify for Medicaid benefits that are needed to help cover long-term care costs.
- Beneficiaries – a spendthrift beneficiary can blow through a lump sum inheritance in record time.
Planning for the Worst
The old adage “plan for the worst and hope for the best” applies here. Protecting your assets begins with assuming that your own personal “worst case scenario” will occur. This requires you to step back and objectively look at your asset portfolio and see where those assets could possibly be threatened – and then assume the threat becomes a reality. What can you do now to prevent that from happening?
Understand the Law
It may turn out that you are the biggest risk to your assets if you don’t fully understand applicable laws, or in the alternative, if you don’t consult with an experienced attorney who understands the law. Common misinterpretations or misperceptions relating to the law can put your assets at risk. For example, you might be under the common misperception that as long as you incorporate a small business your personal assets cannot be reached by creditors. That is not always the case. “Piercing the corporate” veil is the term used when courts decide that a corporation exists is name only and, therefore, creditors may go after personal assets of the owners for debts and/or liabilities of the business.
Keep Assets Separate
When you get married, you may be tempted to combine all your assets. Resisting that temptation may be difficult; however, it could go long way toward protecting your assets. Once you “co-mingle” separate assets they become marital assets. As marital assets they are subject to division in a divorce should the marriage end at any time in the future.
Include Medicaid Planning in Your Estate Plan Early on in Your Life
Unless you can afford to pay the high cost of long-term care ($80,000+ per year, on average, nationwide) out of pocket, Medicaid planning is crucial to protecting your assets – and the sooner you incorporate Medicaid planning into your estate plan, the better. Neither health insurance nor Medicare will cover your LTC costs. Medicaid will if you qualify. Your assets could prevent you from qualifying, resulting in the need to “spend-down” those assets. Moreover, Medicaid’s five-year look back rule means you need to start planning at least five years before you need to qualify.
When in Doubt, Trust in a Trust
One estate planning tool that can almost always be counted on to help with asset protection is an irrevocable living trust. Because the trust is irrevocable, assets transferred into the trust are considered trust property and are, therefore, no longer part of your estate. As such, they remain out of the reach of creditors (and still receive a step-up in basis.)
Contact Us
For more information, please join us for an upcoming FREE seminar. If you have additional questions about asset protection tips, contact the experienced North Dakota estate planning attorneys at German Law by calling 701-738-0060 to schedule an appointment.
- Estate Planning Steps for the Beginner - January 26, 2023
- Common Medicaid Myths Debunked - January 19, 2023
- Why Single Adults Need an Estate Plan - January 17, 2023
