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The ABC’s of Asset Protection Planning

Asset protection is an often overlooked but potentially critical part of estate planning. When performed correctly, asset protection can safeguard your wealth from seizure by creditors and other potential claimants. It is sometimes used by elderly or infirm individuals to establish eligibility for state and federal government benefits. However, any asset protection plan must avoid unlawful practices like fraudulent transfer or concealment of assets.

The core feature of asset protection is that you relinquish ownership but not control of the property you wish to protect. In essence, you are making the assets inaccessible to yourself as well as to creditors while reserving the power to manage those assets. However, you must receive reasonably equivalent consideration for the assets so that the transfer is not seen as fraudulent. Here are some asset protection strategies that can be considered:

  • Protective trusts — Assets can be devoted to funding a protective trust for a spouse or child, to take effect upon your death. However, the trust must restrict the trustee’s use and distribution of the property to the beneficiaries’ financial support, education, health and general well-being.
  • Business entities —Transferring assets to a limited liability company (LLC) in return for an ownership stake can stop creditors from gaining access to them, as long as there are sufficient restrictions placed on the LLC’s power to sell or transfer the assets. However, use of the assets held by the LLC must be limited to business purposes.
  • Annuities — By placing property in an annuity, you obtain a contractual right to receive payments over time. You cannot touch the principal and neither can your creditors. Only the annuity payments themselves are attachable.
  • Charitable annuity trusts — Certain types of trusts allow you to receive annuity payments with the remainder of the assets going to a charity at the end of a specified time period. A trust may alternatively provide for annuity payments to a charity for a term of years, with the remainder then coming back to you or going to other designated persons.

It’s critical to keep in mind that asset protection planning is meant to shield property from future creditors, not current ones. If you try to transfer assets after a claim or liability occurs, the courts may deem the move a fraudulent conveyance and block the transfer, leaving the assets unprotected.

If you are interested in learning more about asset protection, we invite you to reach out to the legal team at The Sterling Law Group, A P.C. Based in Roseville and Sacramento, our estate planning lawyers have years of experience helping California business owners protect their hard-earned assets. To arrange a consultation, call 916-790-9202 or contact us online.


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