What is Asset Protection?
The adoption of strategies to guard one’s wealth is asset protection. Asset protection is a part of financial planning aimed to protect one’s assets from the claims of creditor. Asset protection techniques are used by individuals and business entities to limit creditors’ access to specific valuable assets while functioning within the bounds of debtor-creditor law.
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Quick Overview
1) Asset protection applies to strategies used to protect one’s wealth against taxation, seizure, or other losses.
2) Without engaging in the illegal practices of concealment [hiding of the assets], contempt, fraudulent transfer [as defined in the 1984 Uniform Fraudulent Transfer Act], tax evasion, or bankruptcy fraud asset protection helps to legally insulate assets.
3) Joint ownership of the property under the coverage of tenants by entirety can act as a form of asset protection.
Understanding Asset Protection
Without taking part in the illegal practices of concealment [hiding of the assets], contempt, fraudulent transfer [as defined in the 1984 Uniform Fraudulent Transfer Act], tax evasion, or bankruptcy fraud asset protection helps insulate assets in a lawful way.
Experts suggest that adequate asset protection begins before a claim or liability occurs since, after the fact, it is usually too late to initiate any worthwhile protection. Some typical practices for asset protection incorporate asset protection trusts, family limited partnerships (FLP), and accounts-receivable financing.
Bankruptcy may be considered the more favorable route compared to establishing a plan for asset protection if a debtor has few assets. Proactive asset protection is commonly advised if significant assets are involved.
Under United States federal bankruptcy and ERISA [the Employee Retirement Income Security Act of 1974] laws certain assets, such as retirement plans, are exempt from creditors. Additionally, the majority of states allow exemptions for a determined amount of home equity in a primary residence [homestead] and other personal property, in particular, clothing.
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Asset Protection and Real Estate
Joint ownership of the property under the coverage of tenants by entirety can operate as a type of asset protection. Married persons who hold shared interest in the property under-tenants by entirety share a claim to a whole property and not subdivisions of it.
The combined ownership of the property is when creditors who have liens and other claims against one spouse cannot attach the property for their debt reclamation efforts. The tenants by entirety stipulations would not protect the asset from being pursued by that creditor if a creditor has claims against both spouses.
Putting the property or financial resource in the name of a family member or other trusted associate is considered to be an attempt at asset protection. For instance, the actual owner might gift ownership of real estate or other property to an heir while he/she continues to reside in the property or make use of it. As actual ownership must be determined, the aforementioned could complicate efforts to capture property. In terms of financial accounts, they may also be domiciled in offshore banks for the purpose of legally eluding paying taxes against those funds.
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