Asset Protection Planning: Steps You Should Consider Now

Originally published by Robert Kraft.

There are, to be blunt, two types of assets you’ll want to protect: assets that you want access to when you’re alive, and assets you want others to be able to access after you die.

No matter which types of assets you’re trying to protect, we live in a litigious society, and it’s to your advantage to protect your assets. Asset protection is a multidisciplinary affair: knowing about real estate law, tax law, business law, insurance, accounting, financial planning, and more, will be to your advantage.

What we’ll offer here, then, is just a brief glimpse into the multifaceted world of asset protection in Texas. We’ll cover why you should consider asset protection right now, even if bankruptcy or litigation are the furthest things from your mind. After that, we’ll cover four asset protection fields: homestead protection, forming LLCs, life insurance, and liability insurance.

Why you should consider asset protection planning now

First, the big question – why should you think about asset protection when, to the best of your knowledge, your assets don’t need protecting?

We know you’ve heard horror stories – we all have. Liability suits, painful divorces – we all like to think that these are things that happen to other people, but the sad truth is, they can happen to anyone.

What’s more, if you look at a year like 2020, you see that things can go very badly, very quickly. How many people have had to file for bankruptcy in 2020? How many of those people lost their life savings?

Risk management is all about anticipating worst-case scenarios long before they actually arise. When it comes to asset protection, there are many moves you can make when things are running smoothly that you can’t make when creditors are knocking at your door. Having a plan and systems in place to protect your assets before things go awry is the best way of keeping your money.

Look into homestead protection

There are a lot of reasons to be happy about living in Texas – when it comes to asset protection, Texas homestead law should leave you with a mile-wide smile.

The basics are simple: barring a few exceptions (which we’ll cover), your home is protected from seizure. These protections apply to:

• Homes of 10 or fewer acres within non-rural areas (cities, towns, etc.)
• Homes of 100 or fewer acres in rural areas
• Homes of 200 or fewer acres in rural areas if occupied by a family

Your home being immune to claims by creditors is a massive boon. What’s more, Texas law protects certain assets deemed essential to a homestead: up to $30,000 for individuals, and up to $60,000 for families. These assets include:

• Home furnishings
• Farming equipment
• Jewelry (not exceeding 25% of the 30K or 60K limit)
• Two firearms

That’s not nearly a complete list, either – a lot of things can fall under homestead protection. Your first step in asset protection? Evaluate what parts of your homestead qualify for homestead protection. You might also consider investing more money into a homestead – real estate can be a powerful investment vehicle, and Texas law helps protect your investment. Note that these laws only apply to your primary homestead, and can’t be used for properties that are exclusively for investment purposes.

The exceptions to homestead protection include asset division as a result of divorce and asset seizure as a result of non-payment of taxes. Unsurprisingly, asset seizure as a result of non-payment of your mortgage can also bypass homestead protection.

Form an LLC

Limited liability corporations (LLCs) don’t get their name by chance – they’re used to limit your personal liability, and thus, grant some measure of protection to your assets.

There are a couple of ways you might consider using an LLC in order to protect your assets. The first is if you’re currently running a business as a sole proprietorship – while this can make things easier (less paperwork and a more informal business environment), it means that you’ll be solely liable for the actions of your company. In other words, if your business gets sued, you’re getting sued. LLCs can help you prevent this.

An LLC can also be used if you’ve got a number of rental properties – while most people tend to treat rental properties in an informal capacity, incorporating can help you protect your assets from liability suits brought on by tenants (or others).

There’s not enough space in this article to delve into the various ways you can construct LLCs and subsidiaries to protect your assets – knowledge about how to use corporate vehicles to protect your assets is one thing you should definitely focus on when hiring a lawyer.

Consider insurance

There are two types of insurance you might want to consider for the purposes of asset protection: life and liability.

Life insurance is an excellent way of preserving your estate – Texas has incredibly strong laws surrounding life insurance. With very few exceptions (including, but not limited to, child support or premiums paid explicitly to avoid creditors), any amount of life insurance in Texas is completely protected from the creditors of the insured and the named beneficiary.

You probably already have liability insurance – it protects you in case you’re likely to be found liable for property or personal damage. While most liability insurance will cover you for hundreds of thousands (if not millions) of dollars, you might want insurance that covers you for tens of millions. Check your liability limits, and determine whether or not they’re sufficient enough to protect your assets.

Plan with experts

These are only a few of the many different steps you can take and strategies to consider for asset protection. Everyone’s situation is different, and the best way you can protect your assets is by creating a plan with professionals. Sit down with experts in financial planning, insurance, elder law, bankruptcy, and other related disciplines to develop a holistic asset protection strategy.

Author information: Catherine Holland is a writer based in Canada. She writes articles with a focus on law and business for a variety of companies. Some of her favourite pieces can be found on Matt Gould’s website.

The post Asset Protection Planning: Steps You Should Consider Now first appeared on Kraft Elder Law.

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