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What is Asset Protection?

Estate Planners | Monday, October 18th, 2010

Asset protection is a term that is often referred to by estate and financial planners. The term can be used to explain a number of different concepts, but in most cases it refers to legal techniques that can be used to provide protection for an individual or company’s assets. There are laws in place which have been designed to protect assets, such as investments, bank accounts and real estate. Although some people think that asset protection is only important for companies and wealthy individuals, it’s actually an important step for most people to take. Regardless of how many assets you have, it’s still important to take measures to protect them.

Why is Asset Protection Needed?

There are many situations where one’s assets could be at risk. In many cases, companies and individuals employ methods that help to protect their assets from future creditors. This can be especially important for entrepreneurs or those who own their own business or practice, since they can often be the target of law suits and other actions that could jeopardize assets. These techniques are designed to deter creditors from taking action, or at least making it more difficult to do so if they try. When handled correctly, asset protection can make it impossible or at least quite difficult to seize assets or collect judgments that could jeopardize assets. Of course, it’s important to understand the laws that govern asset protection techniques, because there is sometimes a fine line between methods that are perfectly legal and those that would fall under the category of trying to defraud creditors. Because most people are not well-versed in these laws, it’s a good idea to seek the advice of an expert.

Understanding the Different Forms of Asset Protection

Just as there are many different financial situations, there are also many different ways to use asset protection. In its simplest form, it could mean transferring money temporarily into a friend or family member’s account to protect it. In other cases, it could involve setting up one or more corporations so that your personal assets are kept separate from your business liabilities. This is a common technique used by entrepreneurs and small business owners to protect their personal property in the case that their business is sued. When a corporation has been set up, a law suit would only be able to seize business assets, while personal assets would be protected. Asset protection is also frequently used by the elderly as they prepare for the time when they apply for Medicaid. Because there are regulations in place that limit the amount of financial assets a person can have in order to qualify, people often transfer money to their children or other family members well in advance in order to prevent the need to turn over their savings to the state. Asset protection is also frequently employed to protect assets and avoid excessive taxes and legal problems after a person’s death. When handled correctly by someone who understands the laws governing asset protection, it can be a good way to safeguard one’s finances.

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