As estate planning and elder law attorneys, asset protection planning is something that we engage in on a daily basis. The term is usually used as it applies to litigation, but there are other looming threats out there as well. In this post, we will look at three different types of asset protection.

Business Formation

If you are starting your own business or professional practice, you should definitely keep asset protection planning in mind from the outset. There are different business structures that can be utilized to separate your personal assets from the actions of your business as a distinct entity. One commonly utilized tool that can accomplish this goal is the family limited partnership.

As the name would indicate, the members of the partnership must be members of the same family. If you establish a family limited partnership, you would be the general partner, and the people that you add to the partnership would be limited partners.

When it comes to decision-making, a family limited partnership is not a democracy. You would be the sole decision-maker as the general partner.

To explain how a family limited partnership can protect assets, we will use a relatively simple example. Let’s say that you are a real estate investor. You own two apartment buildings and a shopping center, and you have significant personal assets, because you do quite well as a relatively large-scale landlord.

You convey each of these separate rental properties into a different family limited partnership. It would also be possible to put personal property into family limited partnerships if you choose to go that route.

Someone is injured at the shopping center, and they feel as though the owner’s negligence caused the damages. They decide that they want to file a lawsuit.

The litigant would not be able to go after your personal property, because technically, you do not own the shopping center; it is owned by the family limited partnership. You could intentionally leverage the rental property so that there is very little equity in it, so the partnership would not have a whole lot to take.

Of course, the other rental properties that you own would be protected, because they have not been conveyed into the partnership that you created to hold the shopping center. Your personal property would also be completely protected, and personal property that is owned by the limited partners would be out of reach.

Speaking of the individual partners, if any member was to be sued personally, property that is held by the partnership would be protected. In this manner, the asset protection goes in both directions.

Another asset protection vehicle that businesses can utilize is the limited liability company. If you establish an LLC, your personal property would be separate from the business entity and vice versa.

However, you cannot convey property into a family limited partnership or a limited liability company after you are aware of the fact that you are personally being sued. This would be looked upon as a fraudulent conveyance, and this is an illegal act that would not protect the property in question.

Nursing Home Asset Protection

Another type of asset protection that can enter the picture is nursing home asset protection. A very significant percentage of seniors will someday require this type of care, and Medicare will not assist with the costs. Nursing homes are extremely expensive, so this presents a problem.

Medicaid will pay for nursing home care, but you cannot qualify if you have a reasonable store of assets in your own name. However, with the proper planning, you can divest yourself of resources at the right time in an intelligent, measured fashion so that you can qualify for Medicaid as you simultaneously preserve your legacy.

Estate Tax Efficiency Strategies

If you are a high net worth individual, you must take steps to protect your assets from the ravages of the federal estate tax. It is potentially applicable on asset transfers that exceed $11.58 million, and it carries a whopping 40 percent maximum rate.

Here in New York, there is a state-level estate tax to contend with as well, with an exclusion of just $5.85 million.

Fortunately, there are estate tax efficiency strategies that can be implemented to mitigate the impact.

Reserve Your Workshop Seat Today!

Our estate planning lawyers are holding a number of workshops over the coming weeks. You should definitely attend one of these sessions if you would like to learn more about asset protection planning and other important estate planning matters. Simply click this link and follow the instructions to reserve your seat.