Brookings reports that American households held over $113 trillion in assets in 2018. These are valuable and typically difficult to acquire. Therefore, guarding them is as essential as acquiring them. This way, you can prevent losing all your hard-earned assets to lawsuits, creditors, bankruptcy, and so forth. Below are some effective ways to protect your assets.
1. Create a will
Many legal experts agree that a will is a vital document everyone should have to determine what happens to their estate after their death. Sadly, a recent Caring.com survey revealed that a whopping 68% of U.S. citizens do not have wills. Having a will is crucial to asset protection because it allows you to decide who gets your property and assets. You can name specific people, usually your spouse, children, and some organizations, as the beneficiaries of particular assets as the testator of your will. This way, local courts, and state laws are prevented from taking important decisions about who gets your property and other assets.
Additionally, you can name beneficiaries for any unlisted property or your estate’s residuary. It is also vital to note that you can use your will to ensure that some people do not get anything, especially if you have complex family dynamics. For instance, you might want to stop an ex-spouse from acquiring any inheritance or give a particular child a fair share of your assets. A will eliminates ambiguity and ensures that your family won’t have to guess your final wishes, stopping any long-lasting conflicts.
2. Sign a prenuptial agreement
Prenuptial agreements, commonly known as prenups, are contracts between two individuals agreed upon before marriage. It can involve a broad range of legal matters but usually concerns property division or spousal support provisions if a divorce occurs in the future. There is undoubtedly a lot of cynical sentiment surrounding prenups since many believe that it means one or both partners don’t think their union will last. In fact, many others are offended when prenups are brought up since they take it as a sign of mistrust.
Nevertheless, prenups remain one of the best ways to protect your assets in modern times, given the well-known link between divorce and property redistribution. A prenup protects assets you held before entering into marriage and establishes your right to particular assets you acquired with your spouse while married. You can also protect your family business, jewelry, property, and other high-value possessions, thanks to prenups. Therefore, it is no surprise that more than half of the attorneys polled in a recent American Academy of Matrimonial Lawyers survey revealed that more millennials are requesting prenuptial agreements before tying the knot.
3. Leverage your retirement accounts
You may also want to consider moving cash into your 401(k) account to protect your assets, so keep this in mind. This reality is because federal law gives unlimited protection to ERISA-qualified plans like the 401(k). Your state laws can also give more protection to your IRA. Therefore, consider moving cash into your account if your IRA has excellent protection where you live. However, remember that retirement accounts limit how much you can contribute. Also, the courts can seize any last-minute transfers to your retirement accounts in many states. Consequently, it would be best to comprehend the complexities of IRAs by consulting trusted accountants and attorneys to ensure that you use your retirement accounts to protect your assets as best as possible.
4. Have appropriate insurance coverage
Insurance is also a popular way to protect any valuable assets you own. Therefore, don’t skimp on getting the best insurance coverage to secure your assets. This protection should ensure your future income and cover all outstanding debts on your assets. Some examples of insurance coverage that can help safeguard your assets include life, total and permanent disablement, income protection, and trauma insurance. However, regularly review your insurance coverage level to ensure that it is appropriate for your present needs since your circumstances will unavoidably evolve.
5. Use homestead exemptions
Certain states like Texas, Kansas, and Florida give adequate protection to home equity, prohibiting the court from awarding it to creditors if you declare bankruptcy. Therefore, check your state laws to determine if it offers a huge homestead exemption. Then, consider contributing additional principal to your mortgage payments to secure those funds if it does. Furthermore, remember that how your property is titled can influence a creditor’s attempt to confiscate it.
For example, if you own a home with your spouse in a tenancy by the entirety state, you each have an equal interest in the property. Consequently, the other cannot be forced to give up their interest in the house. Nevertheless, tenancy by the entirety alone is not enough to protect your assets because creditors can seize these assets if you divorce, are both sued by the same party, or one of you dies.
6. Form a trust to hold assets
Trusts are legal assets that hold assets for beneficiaries’ benefit. They are managed by trustees who have all the control over the trust’s property and funds and must govern it based on the trust’s terms and for the beneficiaries’ benefits. Asset protection, life insurance, and qualified personal residence trusts are some of the types of trust you can use to secure your assets from creditors. However, remember that the trust must be irrevocable to keep your assets safe from judgment. Therefore, you cannot exercise any control over your assets or cancel. Forming a trust is complicated, so consider consulting a licensed attorney in your state to assess your circumstances and outline the best options for you.
7. Set up a corporation or Limited Liability Company
It is no secret that you may have unlimited personal liability for your company’s debts if you operate in a general partnership or as a sole proprietor. You can lose everything in a partnership due to your mere association with a partner who makes poor business decisions or commits fraud and other criminal acts. Therefore, consider forming a limited liability company (LLC), limited liability partnership (LLP), or corporation to protect you and your assets from personal liability.
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