If you have worked hard, saved regularly, and invested wisely, you undoubtedly want to protect the assets you have managed to amass as a result. To do that, you need to recognize the various threats to your assets and employ sufficient assets protection strategies to prevent those threats from materializing. For many people, simply recognizing the potential threats to their assets is the hard part because people often fail to see the numerous and varied ways that their hard earned assets could be lost. Once you do learn to consider the numerous ways in which your assets could be lost, however, you will likely be more than ready to include some asset protection strategies in your comprehensive estate plan.
Threats to Your Assets
Some of the ways in which your assets may be at risk are likely obvious to you; however, other threats may not be so obvious. Consider the following potential threats to your hard-earned assets:
- Divorce – your own divorce will certainly put your assets at risk; however, so might the divorce of a beneficiary. Imagine, for example, that you gift your entire estate to your only child. Not long after your death, that child goes through a contentious divorce. If your child’s inheritance was not properly protected, his/her spouse could wind up with half of it in the divorce.
- Bankruptcy – unfortunately, there is no way to predict the future with any certainty. No matter how careful you are, an economic downturn and/or the need to file for bankruptcy protection can always put your assets at risk.
- Business failure – many small business owners think they have structured their business so as to avoid personal liability, only to find out too late that they are, in fact, personally liable if the business fails.
- Beneficiaries – your beneficiaries could put your hard-earned assets at risk by squandering them on drugs, gambling, or another addiction or simply by being a spendthrift.
- Long-term care – if you need long-term care later in life, and you turn to Medicaid for help covering the costs of that care, your assets could be at risk if you failed to include Medicaid planning in your estate plan well ahead of time.
Common Asset Protection Strategies
The good news in all of this is that there are ways to protect your hard-earned assets against the various threats that might put your assets at risk. Your New York estate planning attorney should help you decide which assets protection strategies are right for you and your estate; however, the following are three commonly used strategies:
- Medicaid trust – this is an irrevocable trust into which you transfer assets that would be considered non-exempt for purposes of determining your eligibility for Medicaid. As non-exempt assets, they are subject to the “spend-down” requirements, meaning you could lose them if you need to qualify for Medicaid. By transferring the assets into a Medicaid trust they remain protected; however, you may still benefit from the interest earned on the trust assets.
- Dynasty trust – unlike most trusts that are focused on distributing assets, the goal of a dynasty trust is to keep the assets in the trust for generation after generation. In other words, a dynasty trust is used to protect the family fortune from all types of potential threats. A dynasty trust can protect and grow the family fortune for many years, keeping your family wealth out of the reach of both creditors and spendthrift beneficiaries.
- Irrevocable Life Insurance Trust (ILIT) – as the name implies, an Irrevocable Life Insurance Trust, or ILIT, is a trust that is used to protect the proceeds of a life insurance policy. By funneling the proceeds directly into a trust, you retain a certain degree of control over what happens to those proceeds after you are gone.
For more information, please download our FREE estate planning worksheet. If you have questions or concerns relating to asset protection strategies for your estate plan, contact the experienced estate planning attorneys at the Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.