We Care

Estate planning is requires careful asset preservation planning, P.1

In a previous post on this blog we mentioned that “taking advantage of asset preservation opportunities, particularly for special needs family members” is one of the 10 top considerations for those engaged in estate planning. But why is that?

Among the major goals of estate planning is to preserve your wealth so that you can pass on to your loved ones and other beneficiaries as much as possible. Ensuring that the wealth you pass on is secure from liabilities is the goal of asset preservation planning. The two work hand in hand. It is critical to do some asset preservation planning to effectively do estate planning. Careful use of trusts and well-planning gifting can insulate assets from creditors’ claims and minimize estate and gift taxes.

It is important to remember that asset preservation is different than tax planning and estate planning. While asset preservation planning bolsters estate planning, the goals of each area do not always match up perfectly. For example, as a recent Forbes article pointed out, gifts to prospective heirs can work well from an estate planning perspective, but not necessarily from an asset preservation perspective, since they are prone to fraudulent transfer actions. We will speak more about that in our next post. Conversely, homestead exemptions-which serve to shield a homeowner from property taxes, creditors and other circumstances related to the death the homeowner spouse-are a good idea from an asset preservation standpoint. They are not necessarily advantageous for estate planning, though, since they keep the value of the home within the debtor’s estate. The point here is that there needs to be balancing of the goals between estate planning and asset preservation planning, so that the two work together to achieve the overall goal of passing on secure wealth.

In asset preservation planning, there must also be a balance between giving the debtor too much control over his or her assets, and leaving too little control. Too little control will result in the debtor having no say in how the assets are disposed, but too much can allow creditors to reach those assets based on the theory that the debtor is, for all practical purposes, the legal owner of the assets.

We will continue to look at asset preservation planning in our coming posts.

Source: Forbes, “Ten Rules For Asset Protection Planning,” Jay Adkinsson, 13 July 2011.