Estate planning and asset protection can be deceptively complex. Not only do state and federal laws change, but every family situation is different. Seemingly small choices in how planning is done can have profound tax and family implications, and not having a plan in place can be worst of all.
Every day, business owners discover they have left a lifetime of work and wealth creation at risk to accidents, lawsuits, and financial claims by third parties. This doesn't have to be the case! The law provides adequate means of protecting assets and avoiding undue risks to your estate. However, it is important to use those protections carefully and precisely, or you may find yourself working a lifetime to enrich someone else.
Here are five basic rules to follow when setting up asset protection plans:
1. Sooner is better. Time is important in ensuring asset protection. You simply can't wait until a claim is made or you think there is a possibility of one.
2. Separate personal assets into trusts and business assets into business entities. Understand the differences in legal considerations for both types of protection. Use the two types to achieve the right balance of tax planning and protection of assets. Also, understand the issue of personal control and how it ultimately affects the effective protection of your assets.
3. Assume everything you do to protect assets will see the light of day. Don't count on secret agreements or wink-wink relationships to protect your assets. In fact, the more money involved, the riskier these attempts to hide your true assets.
4. Set up a plan and work the plan. While it may be tempting to run a business corporation as a private piggy bank, it is very important to keep everything in full compliance with the rules and laws. This includes clear corporate minutes and records, as well as a separation of personal and business financial controls. Make sure you fully understand where the lines are drawn and keep them from being intertwined.
5. Use a professional. It's a simple fact that the laws and regulations related to asset protection are complex and they are made even more so when combined with estate and tax planning. What is good for one strategy, such as gifts to children, may create problems in the other areas of planning. Your primary adviser needs to understand the big picture.
Your best possible financial investment is taking time to have a professional evaluate your status. Only a professional can assist you in the protection of your lifetime of work and wealth creation.