Protecting assets from lawsuits and creditors while saving income and estate taxes.

• Author: Miedaner, Randall M.

Preserving a client's wealth and hard earned dollars is becoming a great concern and a high priority in this litigious society. Many businesses and individuals who have failed to plan for potential financial difficulties by structuring their assets have found themselves wiped out almost overnight. The risk of exposure to potential lawsuits exists in every aspect of today's society, including: * Personal injury. * Lawsuits related to auto or home ownership. * Job-related lawsuits, including wrongful termination; breach of contract; malpractice; officer and director liability; workers' compensation. * Governmental agency exposure, including the IRS and state regulatory departments. * Divorce and remarriage. * Investment-related lawsuits. * Major medical illnesses or elderly care requirements.

The purpose of asset protection planning is to structure legally a client's wealth and assets in such a manner that they cannot be reached by lawsuits and/or creditors in the event of a large judgment (i.e., lawfully minimize one's exposure to the possibility of losing one's home, retirement, savings and other family assets) and, at the same time, save on estate and income taxes.

Protection planning strategies

In general, the following asset protection techniques are used in any plan and can also be used to save income and estate taxes. 1. Trusts: Transfers can be made to a trust that retains legal ownership of the property free from creditors' claims. 2. Pensions, life insurance and annuities: These assets are generally exempt from seizure by a creditor as they are protected under state exemption laws. 3. Mortgages and secured debt: Secured debt can be used as a technique to tie up the equity in one's property. 4. Marital property agreements: An agreement can be entered into that will shield at least one-half of the community (husband and wife) from being exposed in the event of a judgment. 5. Corporations: A corporation can be used to limit one's personal liability exposure. 6. Partnerships: A family partnership, if structured properly, is very difficult for a creditor to enforce a judgment against. 7. Donations and gifts: Transfers to children or third parties, if done properly, can place property beyond the reach of creditors. Note: Each of these techniques offers certain advantages and disadvantages from not only an asset protection standpoint, but also from a tax and estate...