Why Do I Need to Know About Asset Protection and How Do I Use It In My Estate Planning?

We love our children and want to make sure that they are taken care of even after we’re gone. That’s why so many of us want to leave an inheritance to our children. But how do we protect them from spending it on expensive cars, extravagant vacations, and extended shopping sprees?

Even if you don’t have a large estate to hand down to your children, how do you think an extra $50,000 or $100,000 would change their lives? Do you think that they would all invest the money wisely so that your grandchildren will have college funds and your kids will have comfortable retirements? Or do you think one or more of them will immediately run out to buy a fancy car or several pairs of expensive shoes?

Asset protection is the legal way to put assets beyond the reach of those who would like to take them away from their owners. Your estate planning lawyer knows of different ways to shield money from your children’s wasteful spending habits. In other words, you can protect your kids from themselves. That’s one reason for asset protection.

Another reason that you may want to explore asset protection tools is that your child’s spouse can go after your child’s inheritance in the event of a divorce. Typically, assets inherited by one spouse during the marriage cannot be claimed as a marital asset to be divided during a divorce settlement. However, typically, while the marriage is going well, your child will want to share his inheritance with his spouse and kids (your grandchildren) and will spend part or all of it for the good of his family. Or maybe he will commingle his inheritance with his family’s other investments so that the inheritance can no longer be considered a separate and distinct asset of your child. All of your children may seem to be in happy marriages right now but who can say what will happen in 5 years? In 10 years?

Another possible concern that you may have about your child losing the money you pass on to him is if he is sued. Does one of your children own his own business? People sue businesses all the time and your child has to follow all the rules of limited liability to ensure that only the company assets are at risk and not his personal assets as well. How does a business owner make sure that his personal assets aren’t at risk if his business is sued? Is the business a corporation or a limited liability company? These forms of running a business are the starting point for ensuring that your child’s personal assets don’t get seized by someone suing his business. Is your child a doctor or lawyer who could be sued for malpractice? Then, he may possibly get sued individually for malpractice and his personal assets are at risk.

Even if your children don’t own their own businesses, they can get sued for any number of reasons. If your child is in a car accident and the judgment is bigger than the amount of insurance he carries, the judgment can be satisfied from your child’s personal assets (including the money you leave to him). If someone slips and falls on his lawn and then sues, the injured person can collect against any of your child’s personal assets.

In order to be effective, asset protection techniques must protect against liability, must not be in your child’s name, and must be done at the right time. Talk to your estate planning lawyer about how to help your children’s spending or losing their inheritance.