Just like in poker, when it comes to asset protection, it is all about removing your chips from the table when you are winning so that you can end up a winner even during the bad times. To be able to have an effective asset protection trust, here are a few rules you should keep in mind:
Begin your planning before any claim can arise
It is the steps you take before a claim can arise that will protect your assets – not what you will do afterward. This is because a fraudulent transfer law can easily undo any actions you take after someone has filed a claim.
Do not use asset protection as a substitute for insurance
It would be a big mistake to use asset protection as a substitute for professional or liability insurance. Instead, use it as a supplement to your insurance. Do not believe the myth that asset protection will scare away plaintiffs. In addition, it does not defend you against a lawsuit nor does it pay your legal fees. Having insurance can also work to your advantage since it can help you survive a fraudulent transfer claim. If someone sues you, let your insurance pay your legal fees and pay to settle it.
Understand that business assets are for business entities and personal assets are for trusts
It is vital to understand that business institutions such as LCCs, corporations, and partnerships are not personal piggybanks. Rather, these institutions act as means of commercial operations. If you place personal assets into a business institution, the potential for a creditor to pierce the entity is great. Your personal assets belong in a trust. There are lengthy and strong laws that safeguard trust assets if it is correctly funded and drafted.
Asset protection planning and estate and tax planning do not always work together
It is true that tax and estate planning work very well together but that is not always the case. Sometimes you might be having one good idea for asset planning that would be horrible for estate planning. You have to be very careful with your plan to avoid any misinterpretation.