If you are worried about preserving your legacy, you can be proactive when you plan your estate. Asset protection planning can provide you with peace of mind while you are living. In this post, we will look at different types of asset protection you may want to consider.
Small Business Owners, Professionals, and Investors
If you own your own business, you should create a shield of separation between your personal property and business-related actions.
A commonly used asset protection structure that works for many professionals, investors, and business owners is the family limited partnership (FLP).
The best way to explain how a family limited partnership works is to look at a hypothetical example. Let’s say you are a doctor and you own two apartment buildings.
You may be concerned about the possibility of legal actions because you are in a high-risk profession and the buildings present a personal injury risk. To protect your assets, you could transfer each apartment building to a separate family limited partnership.
Your practice could be a professional corporation and a third family limited partnership could be established to hold the stock in the corporation.
Finally, you can establish a fourth partnership to hold ownership of your home.
If someone is injured in one of the properties, only the partnership that owns that property can be sued. All other properties would be protected. This includes your personal property that is not in a partnership.
The same thing applies to your professional corporation, which means there could be multiple layers of asset protection. And if a partner is personally sued, the property held by the partnerships would be protected.
A limited liability company (LLC) is another asset protection structure for small businesspeople. Generally speaking, your personal property would be protected from litigants that file a lawsuit against the business.
Once again, the asset protection works in the reverse direction. The assets owned by the LLC would be protected if you are personally sued unless a court issues a charging order, and even then all that can be reached is the net distributable income from the LLC.
You need to be aware of the concept of fraudulent conveyances. If you establish a limited liability company to protect assets after you know you are being sued, this would be a fraudulent conveyance, and the assets would not be protected.
Nursing Home Asset Protection
Nursing home asset protection could be important for everyone. Over 70 percent of seniors will need nursing home care eventually, and custodial care is very expensive. Medicare does not pay for a nursing home.
Medicaid is the widely embraced solution, but you cannot qualify if you have more than $2000 in countable assets in your own name. You can convey assets into an irrevocable Medicaid trust to gain eligibility, but for full protection you need to fund the trust at least five years before you apply.
Estate Tax Asset Protection
The federal estate tax can also take a significant bite out of your legacy because it carries a 40 percent maximum rate, and this is likely to go higher. It can be levied on that portion of an estate that exceeds the exclusion, which is $11.7 million in 2021, and this exclusion is scheduled to go down to limit your liability.
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Need Help Now?
If you have already decided you should work with an Oklahoma City estate planning lawyer to put a plan in place, we are here to help. You can send us a message to request a consultation appointment or we can be reached by phone at 405-843-6100.