Asset protection, in essence, is organizing your property in a manner that protects it from a potential lawsuit. Business entities such as corporations and limited partnerships, as well as estate planning devices like trusts, all exist to safeguard assets against the reach of a possible plaintiff.
A good asset protection plan will not protect property from legitimate claims of debts owed. Contrary to popular belief, one cannot incur debts and then place them in an asset protection mechanism, expecting them to be absolutely protected from creditor claims. However, when little or no assets are within reach of a judgment, that in itself can serve as a deterrence to lawsuit or litigation.
As an individual, business owner, or professional, it is imperative that you carry personal liability coverage or malpractice insurance. However, with an asset protection plan in place, the amount of insurance you need to have may not be as great. An additional benefit of an exceptional asset protection and estate plan is that it helps avoid probate and if applicable, may also avoid estate taxes.
Why can’t you just transfer your property into an irrevocable trust? An irrevocable trust is a valuable tool for protecting assets for your beneficiaries. However, once you place those assets in the irrevocable trust, you cannot get those assets back. Whether or not the trust assets can be reached by the court is determined by the amount of control you maintain over the assets. You may not transfer assets to an irrevocable trust in contemplation of a lawsuit or creditor claims, nor can you name yourself as the trustee or beneficiary of the trust.