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How asset protection planning can help preserve someone’s legacy

On Behalf of | Feb 2, 2024 | Estate Planning |

It often takes a lifetime to acquire significant personal property. Many people spend decades paying off the principal balance on their mortgage to become the sole owner of their home. A lifetime of saving and smart investing usually produces a combination of significant assets which will help secure a person’s standard of living at retirement, and potentially benefit loved ones after their death.

Nevertheless, despite decades of hard work and personal sacrifices, the assets one accumulates over a lifetime can be vulnerable to creditors during retirement, and even after their death. As a result, asset protection planning can be an important consideration during estate planning, especially if someone intends to leave a specific legacy to their loved ones.

Resources are at risk as people age

Living on a fixed income during retirement can be challenging. Older adults may have difficulty adjusting to inflation and cost-of-living increases. If they have any unplanned expenses, such as uninsured medical bills, they may end up with debts that they have no means to pay.

Creditors, including hospitals and other medical facilities, might take legal action against older adults. They may take legal action to place liens on their real property or other assets. Judgments in favor of creditors may severely impact a person’s resources and income during their retirement.

For a limited period of time, these risks persist even after someone dies. Creditors can make claims against a person’s estate once it is opened. Medicaid may demand that a person’s estate pay for the covered treatment they received prior to their death. Asset protection planning may help preserve resources by protecting them from creditor claims as people age, and during the settlement process of their estate.

What asset protection planning involves

Asset protection planning may not be for everyone.  It typically requires a person to identify their valuable assets, determine how much of that they need to live, and how much of their resources they can shelter. Once they do that, they adjust how they own or hold those assets to place them beyond the reach of creditor claims.

An example would include funding a trust with assets that you do not need for your ordinary expenses of living. Once placed in such a trust, which becomes the new owner of those assets, the trust assets will no longer be at risk from a creditor. Those assets also do not become part of your estate during the settlement process.

Some people make gifts carefully timed during their retirement.  Others may grant joint ownership of certain valuable properties with their spouses or loved ones. The type of property one owns, and the identity of the people they want to benefit from those assets will influence the strategy they choose. Creating a comprehensive list of your property, giving thought to the people you want to benefit with that property, and considering how and when you want to benefit them, is a good first step in assessing whether an asset protection plan is right for you.