Protecting Your Assets - How To Shield Your Estate From Creditors?

Posted by smith clea on May 23rd, 2023

Estate planning is an important part of life that generally gets overlooked. It's not something that generally people enjoy thinking about. But it's advisable to ensure that your assets are distributed as per your wishes after your death. However, protecting your estate from creditors is important, It's a topic that deserves attention.

Creditors can come after your estate for many reasons. Such as unpaid debts, lawsuits, or tax liabilities. When they do and dispute, your heirs may not receive the assets you intended to pass down to them. But there are some measures that you can take to protect your estate from creditors.

The things people generally do not enjoy include Estate planning in it. Due to this Estate planning gets overlooked generally. You would like to ensure that after your death the assets get distributed according to your wishes. To let this happen it is extremely important that you protect your assets from creditors.

There are measures with which you can protect creditors to reach your assets. In this article, we will explore some of the most effective ways to shield and protect your estate.

Create A Trust

A trust is a legal entity that holds your assets for the benefit of your beneficiaries and loved ones. When you set up a trust, you transfer ownership of your assets to the trust. A trust is managed by a trustee of your choice.

The trustee may be a family member, a friend, or a professional. They are responsible for distributing your assets as per your wishes. One of the most notable benefits of creating a trust is that it protects your assets from creditors.

The assets are no longer owned by you. They are not subject to your creditors' claims. But, it's important to note that this protection only applies to irrevocable trusts. Revocable trusts, also called living trusts, do not provide asset protection.

Form An LLC Or Corporation

Another practical option to protect your assets is to form a limited liability company (LLC). By doing so, you separate your personal assets from your business assets. Your personal assets are not liable for any debts or legal judgments against your business.

For example, if you have rental properties, forming an LLC to hold them can protect your personal assets from any claims against the properties. Likewise, if you operate a business, incorporating an LLC can protect your personal assets from any legal judgments against the company.

Use Tenancy By The Entirety

Tenancy by the entirety is a form of joint ownership. It is available to married couples. When the property is owned as tenancy by the entirety, each spouse owns the entire property, and neither spouse can sell or transfer their share without the other spouse's consent.

This type of ownership provides protection from creditors. Because the property is not owned by either spouse individually. For example, if one spouse is sued, the creditor cannot create a lien on the property because it is not owned by the debtor spouse.

But, it's important to note that this protection only applies to debts that are solely owed by one spouse. If the debt is jointly owed, the property can be seized.

Get Sufficient Insurance Coverage

Insurance does not protect your assets from creditors. But, it can provide a safety net in case of unexpected events. Ensure that you have sufficient insurance coverage for your home, vehicles, and other assets. Additionally, consider purchasing umbrella insurance.

It provides coverage beyond the limits of your standard insurance policies. Umbrella insurance can protect you from costly legal judgments that exceed the limits of your other insurance policies. It's a cost-effective way to provide an additional layer of protection for your assets.

Consider Domestic Asset Protection Trusts (DAPTs)

Domestic Asset Protection Trusts (DAPTs) are a relatively new form of trust that provides asset protection while allowing the grantor to retain control over their assets. These trusts are only available in a few states. DAPTs provide protection from creditors, including lawsuits and bankruptcy claims.

However, they are not foolproof. There are limitations to their protection. For example, transfers to a DAPT may be challenged in court, and the trust may not provide protection against pre-existing creditors.

Conclusion

Protecting your assets from creditors is an important aspect of estate planning. By taking the steps mentioned above, you can make sure that your assets are distributed as per your wishes and are not subject to claims by creditors.

Creating an asset protection trust, forming an LLC or corporation, using tenancy in its entirety, getting sufficient insurance coverage, and considering DAPTs are all effective ways to protect your assets. It's advisable to consult with a qualified estate planning attorney to find out the best approach for your specific situation.

Also, it's important to stay up-to-date on changes to the law and to periodically review and update your estate plan. By doing so, you can ensure that your assets are protected and that your loved ones are provided for after you pass away.

In summary, protecting your assets from creditors should be a priority. By taking the steps outlined above and working with an experienced attorney, you can ensure that your assets are distributed as per your wishes and are protected from potential claims by creditors.

About The Author

Smith Clea is a USA-based author on Legal issues related to estate planning, will & trust business law, and elder law. Smith Clea does her best writing on these topics that help users to find the best solutions to their FAQ on estate planning, asset protection trust, probate attorney, and more about legal family issues. The author can be reached at https://rochesterlawcenter.com