Preserve Wealth for Yourself and Your Heirs Using Asset Protection Strategies

There are many techniques you can use to protect your assets, from giving them to loved ones to placing them in offshore trusts. It’s important to understand that asset protection isn’t about evading legitimate debts, hiding assets or defrauding creditors. Rather, it’s about preserving your hard-earned wealth in the face of unreasonable creditors’ claims, frivolous lawsuits or financial predators.

Assess Your Risk

The first step is to assess the risk that creditors, former spouses or opportunists will go after your assets or those of your beneficiaries. If your risk is relatively low, but you seek added peace of mind, you might consider simpler techniques, such as changing the way assets are titled or gifting them to your loved ones. However, if your risk is higher — for example, if you own a business, are in a profession with a high degree of malpractice risk or are involved in other activities that expose you to potential financial liability — you might consider more sophisticated approaches.

If you wish to protect assets while retaining some control over them and also shielding them from your loved ones’ creditors, consider utilizing an irrevocable trust (as revocable trusts provide zero asset protection). Not all trusts are created equal, but transferring assets to a properly designed trust places them beyond your creditors’ reach (provided it’s not a fraudulent transfer and you’re not a trust beneficiary as self-settled trusts are not protected in Louisiana).

By including a “spendthrift” provision, you can protect the assets against claims by your beneficiaries’ creditors. A spendthrift provision prohibits your beneficiaries from selling or assigning their interests in the trust, either voluntarily or involuntarily. However, a spendthrift trust will not necessarily prevent a creditor from compelling a distribution to satisfy a claim, unless the trust is properly designed.

To provide even greater protection for your beneficiaries, consider using an independent trustee and giving him or her full discretion over distributions from the trust. Suppose, for example, that you establish a trust for the benefit of your child and authorize (or require) the trustee to make scheduled distributions or to distribute funds for your child’s “health, education, maintenance and support.” This is commonly referred to as the HEMS standard (for Health, Education, Maintenance, Support). Typically, a fully discretionary trust containing separate property of a child / beneficiary avoids inclusion in the marital estate in Louisiana, although in some states this trust type may be treated as part of the marital estate to be divided in divorce. Note that if the trustee can be compelled by a beneficiary to make distributions from a trust for “health, education, maintenance and support,” then so can a creditor, so proper drafting is paramount if asset protection is a goal. A good example of the perils of utilizing the HEMS standard in a trust when asset protection is a goal can be found in this blog article:

Start Planning Now

Asset protection is like a vaccine. It works best when administered in advance. While there is no cookie-cutter approach and a proper plan must be tailored to your particular circumstances, whichever strategy you choose to implement, it’s critical to start planning now. The earlier you implement asset protection, the more effective it will be.

Free Resources

For more useful information about how to protect your home, savings, and family, and free downloads, visit our Free Resources page.

Theus Law Offices specializes in a complete range of estate planning and elder law services, including wills, trusts, probate, successions, estate administration and probate litigation. If you need a Louisiana wills and trusts lawyer or succession attorney in Alexandria, Lafayette, Lake Charles, Baton Rouge, New Orleans, Shreveport, Monroe, or elsewhere in Central Louisiana, let our certified estate planning specialist and probate lawyers help you.