What is Asset Protection?
Asset protection is the process of using lawful financial, business, and estate planning strategies to reduce unnecessary exposure to future creditor claims and lawsuits. Whether for a business or an individual, effective asset protection involves several coordinated layers of protection that may include exempt assets, insurance, estate planning, and appropriate business structures.
Asset protection plans are proactive measures with real-time, tangible benefits. Structuring your affairs properly helps you save time and money on administrative tasks, reduces future tax payoffs, lessens your number of lawsuits, and expedites any potential settlements.
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Asset Protection Methods
The best way to protect your assets is by proactively purchasing and owning exempt assets, implementing proper estate planning strategies, and structuring your business correctly.
Purchasing Exempt Assets
Exempt assets are specific properties and possessions that are legally protected from creditors and prevent seizure or sale of property. These protections are generally found in Ohio Revised Code Section 2329.66.
Examples of exempt assets are:
Individual Retirement Accounts (IRA): IRA payouts are capped under federal bankruptcy law; however, asset protection outside of bankruptcy is dependent on the state.
ERISA Protected 401(k) Accounts: Qualified 401(k) plans receive unlimited protection from creditors and lawsuits under federal law.
Life Insurance: Transferring insurance policy ownership to irrevocable trust removes the death benefit and blocks creditor claims.
Annuities: Annuity liability protection from creditor claims or lawsuits are dependent on the state, but annuities are given tax benefits.
529 Plans: Some protection under federal bankruptcy law, and some states place caps on how much is shielded from lawsuits.
- Certain Personal Property: Up to $5,000 in home equity and reasonably priced automobiles may be protected from creditor claims and lawsuits.
These protections are not unlimited, and many of the dollar amounts are periodically adjusted under Ohio law. Whether an exemption applies can also depend upon the type of creditor, the nature of the asset, and how the asset is owned.
For that reason, asset protection planning should begin with a basic question: What do you own, how do you own it, and what legal protection already applies to it?
Proper Estate Planning
Avoid probate and protect your assets with a comprehensive estate plan. An estate plan arranges your assets—including money, property, and personal affairs—and determines how they will be managed if you have died or become otherwise incapacitated.
You can also dodge probate by avoiding:
Joint Credit Cards
Shared Loans
Risky Business Ventures
Joint Company Ownership
Insolvency
Risky Business Ventures
- Fraudulent Transfers
Legally Structuring your Business
For business owners, a proper business structure creates a legal barrier separating your personal assets from business liabilities and lawsuits. In short, creditors and lawsuits cannot touch your personal accounts.
The two primary types of legal business structure are:
Limited Liability Company (LLC): Combines elements of partnerships and corporations, flexible taxation, and are generally simpler to set up and maintain compared to FLPs. Liability protection is provided to all members of an LLC.
- Family Limited Partnership (FLP): Designed to manage family assets by assigning general partners and limited partners, providing estate planning benefits. General partners are not fully protected and may be personally liable for creditor claims or lawsuits.
There are other considerations to keep in mind when choosing a business structure, such as tax implications, situs factors, and corporate formalities. Consult with your attorney to determine which business structure is best for your business.
Bottom Line
There is no such thing as an “unbreakable” asset protection plan, and no strategy can guarantee that an asset will never become subject to a claim.
There are, however, meaningful steps individuals and business owners can take to reduce unnecessary exposure and place themselves and their families in a stronger legal and financial position.
For some people, that may mean taking advantage of protections already available under Ohio Revised Code Section 2329.66. For others, it may involve proper business entities, insurance, estate planning, beneficiary trusts, or, in appropriate circumstances, an Ohio Legacy Trust under Chapter 5816.
At Gertsburg Licata, we work with individuals, families, and business owners to evaluate how assets are owned, identify potential areas of exposure, and develop estate planning and business strategies appropriate to their circumstances.
Contact Gertsburg Licata Co., LPA at (216) 573-6000 or on our website to start a conversation.
This article is intended for general informational purposes only and does not constitute legal advice. Asset protection strategies depend heavily upon individual circumstances, including the nature and timing of potential claims
