Many families want to protect their estate from lawsuits but don’t know how to. There are a few different ways to do this, and each family’s situation is different. Some families choose to set up trusts, others decide to create limited liability companies (LLCs), and still, others use a combination of Corporation, Trusts and other legal entities to protect what matters most. Each of these methods to protect the estate from lawsuits have certain benefits and drawbacks, and it is important to understand them before making a decision.
In this article, we will look at some of the most common asset protection tools families use to protect their estate from lawsuits.
Get Insured
When a family member dies, their estate is often left vulnerable to lawsuits. This can be costly and time-consuming for the remaining family members who are left to deal with the legal proceedings. One way to protect the estate from lawsuits is to purchase life insurance. This will provide financial protection for the estate if someone files a lawsuit after the death of a family member. Life insurance will also help pay for any legal fees that may be incurred during the course of a lawsuit.
Set Up Limited Liability Companies
An LLC can help shield the estate from personal liability if someone brings a lawsuit against it. This is because the assets of the LLC are separate and distinct from the personal assets of its owner. As a result, if someone sues the LLC, they cannot go after the owner’s assets.
Another benefit of using an LLC to protect an estate is providing some tax benefits. For example, an LLC can help reduce or avoid income taxes on the estate’s profits. It can also help reduce or avoid gift and estate taxes on property transfers to the LLC.
However, there are some drawbacks to using an LLC to protect an estate. One is that there are costs associated with setting up and maintaining an LLC.
Establish Irrevocable Trusts
Irrevocable Trusts can certainly provide legal protection but is something you should be very careful with. These type of Trusts are irrevocable and therefore can be nearly impossible to change and you should consult with a professional before implementing. With an irrevocable trust, the assets are placed out of the reach of the estate and cannot be used to pay any legal judgments. This can help protect the assets from creditors, ex-spouses, and others who may try to claim them.An irrevocable trust can also help reduce or eliminate estate taxes. The trust must be set up properly to take advantage of this tax benefit, and some other restrictions apply. But for families with a large estate, an irrevocable trust can be a powerful tool for protection.
Build Asset Protection Trusts
Asset Protection Trusts are gaining in popularity and every day we hear about the latest type of “trust” that will provide the ultimate asset protection. Be aware that trust law is virtually all the same and any “new” trust that has not been court tested could make you the “guniea pig” when it comes to protecting your assets. Don’t leave your hard-earned assets to chance and be very careful with new Trusts that are claiming they will protect you.
Asset Protection Trusts can help shield the family’s assets from creditors, including those who may try to sue the family for damages. An asset protection trust typically contains a number of safeguards that can make it difficult for plaintiffs to sue the trust and collect any damages awarded successfully. These safeguards may include provisions that limit the amount of money that can be withdrawn from the trust each year, as well as restrictions on how the money can be used.
Limited Partnerships
A Limited Partnership is a legal entity created entirely by statute and has been around since 1907. This longevity creates a much stronger asset protection due to the certainty at the court level. The case law is clear how a limited partnership will be treated.
Limited Partnerships can be used to protect safe assets in many states. However, there are several states where an LLC may provide better asset protection. Its best to consult with a professional to consider which entity to use when protecting your assets.
