14 Apr Tips for Asset Protection
Who needs asset protection planning? Is it necessary for everyone, or is it only important in certain situations? Asset protection planning is a key component of wealth management. The goal is to shield your wealth from being seized or used to satisfy a legal judgment. Not everyone needs it, however there are times where it can be essential. A comprehensive, well-executed plan can help you minimize your risks and secure your wealth for the long term.
We go into more detail on how to protect your personal assets and go over a few asset protection strategies.
Who Needs Asset Protection?
Asset protection involves strategies to safeguard your wealth from creditors, lawsuits, and other potential legal claims. Whether or not you should use these strategies will depend on your financial situation, the types of assets you hold, and the level of risk you’re exposed to.
It’s especially important for individuals with sizable estates or those in high-risk professions. For example, lawyers, consultants, insurance brokers, software developers, contractors, landlords, and medical professionals all have a higher risk of running into lawsuits.
Asset Protection Planning and Strategies
Insurance often plays an important role in asset protection. Umbrella insurance, for example, provides extra liability coverage, while professional liability insurance protects your assets against claims related to your profession. But on its own, insurance isn’t always enough. If you want to protect your personal wealth or your children’s inheritance, there are other legal steps you can take.
There are many ways to approach asset protection, but in estate planning we focus on three main structures:
- Irrevocable Trusts
- Limited Liability Companies (LLCs)
- Family Limited Partnerships (FLPs)
Let’s take a closer look at each of these methods, and the situations where they apply.
1: Irrevocable Trusts
Establishing a trust is a step that many families can benefit from, even if they don’t have a large amount of wealth. An irrevocable trust will help you keep your wealth in the family so it can continue to grow and benefit future generations. For example, setting up a lifetime asset protection trust is a great way to protect your children’s inheritance.
If you fear that your wealth may be vulnerable to lawsuits or creditors, you can use an irrevocable trust to legally separate yourself from your assets. When you transfer ownership of those assets to the trust, you are effectively removing yourself as the legal owner. In most cases, this prevents creditors or lawsuits from coming after the assets in an irrevocable trust.
Appoint someone you trust to act as the trustee, rather than naming yourself. Taking on the role of trustee in an irrevocable trust could undermine its purpose and expose your assets to potential collections. It’s safer to have a trusted individual manage the assets on your behalf.
2: Forming an LLC
A Limited Liability Corporation (LLC) protects its owners (or members) from personal liability for the company’s debts. It means their personal assets cannot be seized in case of bankruptcy. LLCs also offer tax benefits, as members report their share of the profits or losses on their individual income tax returns, and business-related expenses can be deducted. Additionally, LLCs provide estate planning advantages, like allowing owners to gift shares to beneficiaries without income or estate taxes.
3: Forming an FLP
When families want to pool resources because they run a business together, they can set up a Family Limited Partnership (FLP). Starting an FLP could be a good idea if you and your family want to protect your personal assets from business liabilities, reduce the risk of personal lawsuits, and plan for a smooth transition of wealth to the next generation. This strategy works especially well for families that hold significant business assets (like real estate or shares in the business) and want to create a solid structure for long-term management.
For example, let’s say several siblings want to open a restaurant together. They consider putting their business assets in an FLP. The FLP will hold the assets of the business, protecting them from creditors. None of them can be held personally responsible for business debts beyond the amount of their invested capital. It will be especially useful if the restaurant ever faces financial hardships or lawsuits.
Another benefit of an FLP is the potential to reduce estate taxes when transferring wealth to the next generation. If one of the siblings who holds shares in the restaurant passes away, they can transfer their shares to their children.
Estate Planning Attorneys in Scottsdale, AZ
If you live in Arizona and need help protecting your assets, we’re here to help! The legal team at Phelps LaClair can help you establish an irrevocable trust, set up an LLC, and use other asset protection strategies to preserve your wealth for your heirs. We’ll design a solid, customized estate plan and meet with you for regular reviews to ensure that it still covers all of your needs. Call us at 480-892-2488 today to get started with a free consultation.
Images used under creative commons license – commercial use on 3.18.2025. Photo taken by Yolanda Jost from Pixabay.