Asset protection planning is designed to protect assets against risks posed by lawsuits, potential creditors, or pending bankruptcy. Asset protection is especially important for professionals and business owners whose personal assets may be at risk in the State of Florida. But, given the litigious nature of society these days, it should be a very important aspect of estate planning for all clients. Furthermore, it is vitally important with this type of planning to ensure that it is completed in advance, before any event which gives rise to potential liability exposure. Otherwise, you run the real risk of having your planning set aside as a fraudulent transfer, fraudulent conveyance or fraudulent conversion.
State and federal laws exempt some of your assets from the claims of creditors. While some states allow you to choose either the state or federal exemptions, in other states you must use the state exemptions and federal bankruptcy exemptions are not available.
After identifying the protected asset classes available under applicable law, it may be prudent to convert any remaining non-exempt assets into exempt assets.
Some people choose to operate their businesses as sole proprietors instead of operating through a legal entity, such as a corporation or a limited liability company. Conducting business through an incorporated legal entity may offer substantial risk management benefits over the sole proprietorship, but selecting the appropriate legal entity is critical to managing risk.
Purchasing and maintaining proper insurance is an important part of asset protection planning. It is also important to review your policies periodically and determine the following:
- Are your policies current?
- Are the coverage limits adequate and are the deductibles reasonable?
- Have you scrutinized the policies for loopholes?
Insurance is a way to shift risk in exchange for paying a premium. Therefore, the fundamental philosophy of any insurance coverage is to pay a premium you can afford to transfer a risk you cannot afford. Take time to understand both the risks you have retained and the risks you have transferred.