Estate Planning for Asset Protection

6 Replies

Do you have your estate plan / trust in place? If not, then you are not protected from wealth destruction and the Big 4. 

Asset Protection is not just about preventing liabilities A true asset protection plan involves protecting you from the Big 4 wealth destroyers: 

1. Devastating healthcare expenses; 

2. Remarriages after the death of the first spouse; 

3. Your children’s own divorce or death before their spouse; and 

4. Judgments from lawsuits.

Most asset protection attorneys stop at, and only focus on, judgment protection, and most estate plans do nothing to prevent the other three. They only focus on death taxes and probate avoidance. Neither of which are relevant in todays time. Death taxes and probate are outdated concerns and are not what destroy modern day wealth.

Current estate planning is NOT serving modern society and families. An out of control litigious society, and the things that really eat up modern family wealth have nothing to do with what consumers would expect. Your standard estate plan is still 100 years behind the times, and families have devastating costs due to poor traditional and outdated estate planning that have nothing to do with asset protection. 

Estate Planning is Dead! It ignores the things that are destroying families, destroying financial independence, and destroying wealth in modern society. They do nothing to protect family assets from the modern enemies of your legacy.

The good news is we are living a lot longer, the bad news is we are not prepared for it, and the financial and legal services industries are very traditional and slow to evolve.

First, Asset Protection is NOT about tax avoidance or reduction. Any asset protection plan has to be tax neutral on its face to hold up in court and be seen as fraudulent.

The federal death tax increased in 2000 from $675k per couple to $5,45M per couple. So the modern estate tax impacts less than two-tenths of 1 percent (0.02%) of American’s, unless you live in a state like Oregon. One simple planning devise most do in their estate plans is to combine the estate tax exemption for each spouse in a trust (called an A/B trust). This preserves the estate tax credit and passes it along to the surviving spouse so when the surviving spouse dies, the children could use both parents estate tax credits in the same estate. But, if you live in a state like lets ay Oregon that still has death taxes and that still requires the payment of the surviving B estate side, the A/B Trust does not offer much help. And if you are not one of the (0.02%ers), your not effected, so the AB Trust is outdated anyways.

What you really need is a modern up to date estate plan that focuses on current modern wealth destroyers. You must have Medicaid Triggers! Planning for unconscious states, not just transferring property at death. We will spend more time in unconscious states and in long-term care. The ability to move assets around while one parent or spouse is unconscious and to pay for long term care and to qualify for Medicaid is necessary. Long Term Care Insurance. And if you have kids, not just guardians, but temporary guardians like your babysitter or neighbor who can take care of your children while the long term guardian arrives, That way you avoid child services and the long court system. Especially if your named guardians do not live in the state. 

Most people try to cut corners when they do their estate planning. This is part of the problem. The most asked question "How much for a trust?" This is the wrong question. A better question to ask might be: "If you design an estate plan for my family, will it actually accomplish what I expect it to?"  Also ask about how the plan design, protects your family from devastating healthcare costs, how it ensures your family will actually receive and keep their inheritance. Does the plan have a Trust Protector? Does it have spendthrift clauses? Healthcare Triggers? 

Originally posted by @Brian Bradley :

First, Asset Protection is NOT about tax avoidance or reduction. Any asset protection plan has to be tax neutral on its face to hold up in court and be seen as fraudulent.

This sounds counterintuitive.  Is this what you really meant to say?  If so, then please elaborate.

@Dave Toelkes what is counterintuitive? Elaborate on what? What is your question? AP plans have to be tax neutral. Tax benefits is just a by-product. Not the goal. So when setting up an AP plan to limit liability like most talk about on BP its with LLCs and land trusts etc, the objective cannot be to avoid taxes. Then its a tax shelter and not enforceable. 

Then, regarding a total AP plan to address all 4 topics you need to protect against the Big 4 wealth destroyers. Not just one. 

So, what is contrary to the advise? 

You have two different systems that have to be set up. AP for investments like your property that is tax neutral and for limiting liability so using LLCs and holding companies and land trusts. Then your estate plan like your living trust etc that then actually address the other issues (Inheritance, healthcare costs, triggers, etc). 

Does that help? 

@Dave Toelkes if tax benefits or avoid / deceasing tax's is the goal, then that is NOT AP, but something that you would discuss with your CPA and he would go over strategies. 

Asset protection planning will NOT aid a client in evading the payment of taxes etc. Asset protection planning does not use the concept of hiding assets but works in general to protect those assets. A hidden asset may be found, but a protected asset is a more secure one. Professional and ethical advisors do not use asset protection as a means of defrauding creditors. What you can do is make it very difficult and expensive for plaintiff's to get to your money. That is AP for investments. 

Then a separate area that must be addressed in wealth preservation is estate planning that people commonly will think of as a living will / trust. To preserve the modern day wealth destroyers your estate plan must now take into consideration modern problems discussed above. Unfortunately most do not have any modern protection in them. 

By doing both, and addressing all of the Big 4 then you are closer to AP and overall wealth preservation.