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Options for protecting your assets from creditors and liabilities, P.1

When you go about establishing an estate plan, one of the things you will want to remember to work into your plan is some component of asset protection. The basic idea behind asset protection planning is to reduce your chances of losing your assets to a creditor. This is an important aspect of estate planning because the whole point of estate planning is to ensure that your wealth goes to persons and causes you care the most about.

One of the big areas where asset protection is critical in estate planning is for the reduction of estate tax liability. But there are many other potential sources of liability and ways to address them from an asset protection standpoint.

Trusts can be used for asset protection. One way this is done is through spousal gifting trusts. These allow married persons to protect assets from creditors and estate taxes while maintaining control and use of those assets should they be needed. Some states allow for self-settled domestic asset protection trusts, which can protect one’s assets from creditors. However, most many states do shield assets held in such trusts from creditors, since they are self-settled.

Offshore asset protection trusts provide solid protection for assets. These are trusts set up in countries with a long history of case law shielding trust assets from creditors. These trusts carry the added benefit of allowing for easy access to assets in the midst of creditor claims. One should be care, however, of offshore asset protection scams.

Qualified retirement plans, such as 401(k)s and IRAs, are another way to shield assets. The degree of protection varies by plan, and there are a number of options to choose from. These plans also involve a tax deduction for contributions.

In our next post, we’ll continue looking at asset protection options.

Source: nuwireinvestor.com, “Asset Protection in Uncertain Times,” Ward J. Wilsey, January 17, 2012.