Asset protection planning involves the review of a client’s personal and professional behavior with a focus on good risk management and asset allocation. A strong asset protection plan shields a portion of a person’s assets from the claims of certain creditors by creating walls between unrelated assets. It also provides peace of mind and can save significant sums of money in a variety of circumstances.
Asset protection looks not only inward at what assets are meant to be protected, but also outward at the possible claims to which those assets are exposed. For example, renting out a second home means that the tenant, the tenant’s guests, and anybody injured by the tenant or a guest could all be potential plaintiffs against the homeowner. One step in this situation might be to form a business entity, such as a limited liability company (LLC), and transfer the rented home into the LLC. This step would help keep a client’s other investments or personal residence from being subject to the claims of these potential plaintiffs.
Worthwhile asset protection also means good recordkeeping, insurance policies that cover all the risks faced by a client, and the recognition that business assets can and should be owned separately from personal assets.