Asset protection, like Medicaid planning, is an important aspect of estate planning. In truth, Medicaid planning is a form of asset protection, which includes a number of other considerations like tax minimization, planning for special needs children, and ensuring avoidance of costly will contests.
One area where asset protection should be especially considered is with respect to one's home. For many families, the family home is the largest asset. But, as a recent Reuters article points out, many homeowners choose not to take steps to protect their homes, such as setting up trusts and limited liability companies.
Those who own income-producing property should strongly consider setting up a limited liability company. The main purpose of an LLC is to reduce personal liability in the event of a lawsuit. Should there be a lawsuit, only the LLC's assets are on the line.
If the property doesn't earn that much money, or is simply a personal residence, a living trust may be a better option. There are various trust structures one could opt for. One is the Qualified Personal Residence Trust (QPRT). These are trusts which cannot be changed without permission from the beneficiaries, and are usually set up so an owner can live in the property for a fixed period of time before passing the property to heirs. One benefit of QPRTs is that they can lock in the value of depressed property. Down the road, transfer of the property will make use of the property value at the time of the trust's establishment.
In our next post, we'll continue speaking on this topic.
Source : Reuters, "Weighing the what-ifs of trusts and LLCs ," Beth Pinsker Gladstone, May 3, 2012.