It’s important to know how to safeguard your wealth against creditors. A carefully constructed asset protection plan can help you tremendously in the event that you become subject to a lawsuit, and it’s an essential part of estate planning as well.
That said, there are a number of pitfalls that you should avoid when creating an asset protection plan. We’ll go over a few of the most common here.
1. Assuming You Don’t Need an Asset Protection Plan
First, many people assume they don’t need an asset protection plan, either because they aren’t extravagantly wealthy or because they don’t think they have much risk of having creditors come after them. The truth, however, is that lawsuits, defaults on loans, business losses, and so forth can happen to anyone, and even a modest amount of wealth needs protecting.
In fact, if you have only a moderate amount of wealth in assets, your need for asset protection may be even greater than it would be if you were a multimillionaire because it’s much harder for you to absorb the costs of a lawsuit.
2. Waiting Too Long to Make a Plan
Another common pitfall is waiting too long to make a plan. An asset protection plan needs to be in place long before your assets come under threat. If you put it off until creditors are calling you, it will be far too late. Waiting until the last minute simply does not work, especially since many asset protection strategies can be considered fraudulent if done in response to collection attempts or legal judgments.
3. Relying on Only One Strategy
The best asset protection plans are multifaceted. If you rely on only one strategy, you’ll still be exposed to creditors. Each strategy has its own strengths and weaknesses, and you’ll need multiple tactics in order to cover all areas where you might otherwise be left open.
4. Not Using an Individualized Plan
Similarly, you need a plan that’s tailored to your exact situation. There’s no “one-size-fits-all” plan that works for everyone. The amount of wealth you have, the nature and worth of your assets, and even your life situation can affect what strategies will work best for you. In addition, the types of problems you might have with creditors should also inform your plan.
5. Failing to Update Your Plan
Once you have an individualized plan in place, it’s not over. You need to continuously update it as your situation changes. Your business may grow larger, you might buy a bigger home, or your family/life situation may change. Any time you have a life-changing event, it will be time to update your plan.
6. Not Using an Attorney
Finally, don’t try to do it all by yourself. There are many approaches to asset protection, as well as numerous legal matters to consider, so enlisting the help of an attorney, can help you tremendously. A competent asset protection lawyer will help you know which strategies are best for your situation and help you execute your plan properly.
If you are in need of an asset protection plan, contact our lawyers at Hart David Carson LLP for a consultation.