What are the Different Asset Protection Strategies?

Asset protection strategies are methods to shield money and various types of property from creditors, taxes, and lawsuits. Different strategies include setting up retirement plans, trusts, and business entities. Attorneys and other professionals who specialize in estate planning, tax law, and asset protection strategies use a combination of methods to help clients shield income. Asset protection strategies vary based on the laws of each jurisdiction. 

Lawyers who develop asset protection strategies sometimes use retirement plans to shield assets. In the U.S., for example, the law protects specific types of retirement plans from lawsuits, which means that a court cannot force a person to take money out of a retirement plan to pay a judgment. Plans that may qualify are IRAs or pension plans and 401(k) plans. These plans are often available through the client’s employer. An employee pays a certain percentage of his salary into a plan that earns interest and his employer often matches the contribution. 

Asset protection strategies often include trust instruments. A trust is a legal entity that holds assets for the benefit of one or more persons called beneficiaries. A person called a settlor places his assets into a trust with specific instructions to a trustee. A trustee is an individual, a bank, or a company that manages the money placed in the trust. A trustee must manage the assets in accordance with the settlor’s instructions.

Only certain types of trust instruments can function as effective tools in asset protection strategies. For instance, in an irrevocable trust, laws prohibit anyone from removing the assets placed in the trust. This means that a court cannot order the settlor or the trustee to turn over the assets to pay a judgment. There are various types of trust instruments, and each functions differently based on the jurisdiction. Hence, it is important to consult with a lawyer experienced in asset protection strategies and trust instruments.

Strategies for asset protection may also involve a business entity such as a corporation, limited partnership, or a limited liability company (LLC) to shield assets. A structure like an LLC allows someone to conduct a business while protecting his personal assets from liability. Of course, another person or business can sue a business entity and get a judgment against that entity. The LLC members or corporate officers, however, are usually not responsible for paying a judgment personally. The law can reach the personal assets of the owners only under very limited and rare circumstances.