Asset protection planning can be part of the estate planning process. It can also be an entirely separate consideration. Some people worry about protecting their resources long before they start thinking about their own mortality.
There are numerous reasons why people with valuable assets, such as real property, well-funded financial accounts or a business, might engage in asset protection planning. The three concerns below top the list of reasons why people plan in advance to protect their resources.
1. Concerns about outside claims
Litigation of various sorts can lead to claims against personal property or real property. Personal injury lawsuits brought by others against the owner of the assets or lawsuits pursued by creditors against an individual or their estate could force the liquidation of high-value resources. Planning in advance can protect assets from liquidation in the event of a lawsuit.
2. Fears of family conflict
Frequently, people worry about their loved ones fighting over their property after they die. If their loved ones fight in probate court over their resources, the cost of litigation can significantly diminish the value of the estate. Asset protection planning often involves the use of trusts or the preemptive adjustment of ownership. Both of those practices can limit the likelihood of legal conflict within the family over property.
3. Worries about estate taxes
Estates that are worth millions of dollars may be subject to estate taxes. Estate taxes are progressive and can consume a substantial portion of the overall estate’s value. Prior planning diminishes the assets held directly by the estate and can eliminate the risk of estate taxes or at least minimize the tax rate that applies.
People concerned about preserving their resources and protecting family dynamics may want to engage in asset protection planning before litigation or conflict ever arises.