What Does Asset Protection Mean?
The most basic goal of asset protection is to safeguard your property from being taken by divorce, predators, and lawsuits. Your assets can be protected by maximizing state and federal exemptions, but sometimes the best option is to pay a lower tax rate (such as income tax vs. estate tax).
Fortunately for Texans, state law allows you to protect an unlimited amount of value in your homestead and a sizable amount of personal property as well – up to $30,000 of household furnishings and personal property per spouse, one car for each licensed driver in the household, tax-deferred retirement accounts, life insurance proceeds (with some exceptions), and smaller things such as two firearms, some cattle, and family heirlooms.
As of the date of this article, the federal lifetime exemption amount (the estate tax threshold) is $11.7 million per spouse. If your estate is above that value – congratulations!
However, asset protection isn’t just for the ultra-rich. The lifetime exemption amount is set by Congress, which means it’s subject to change any time Congress is in session. In fact, Congress has already been presented a proposal to reduce the lifetime exemption amount to $3.5 million.
When you account for life savings, investment growth, and payable on death benefits, many estates will fall into estate tax territory without realizing it.
If you’re curious about asset protection planning, or if you’re a high litigation risk, schedule a free consultation with Hunter Sargent, PLLC to learn more.
What About Protections from Divorce?
Every marriage is at risk of ending in divorce because of the “no fault” grounds for a divorce lawsuit in Texas. Even if you love and respect your son- or daughter-in-law, the reality is you never know what’s going to happen in the future. Do you want your legacy to be split with someone who’s divorcing your child?
Texas law is clear that anything you inherit is your “separate property” – property that isn’t subject to division in a divorce suit. However, the harsh reality of divorce means anything your child owns or controls is on the bargaining table.
For example, an overzealous divorce lawyer or a scorned spouse can make things very difficult and expensive for your child unless they agree to chip in a little extra from their inheritance. In another example, your child may be willing to do anything to keep embarrassing details out of court.
With asset protection planning from Hunter Sargent, PLLC, we can plan to protect your legacy from your child’s divorce with trusts that automatically remove control from your child if a divorce is filed – meaning your child couldn’t give any part of their inheritance to the divorcing spouse even if they wanted to.
This kind of asset protection planning requires careful drafting and explanation from an experienced estate planning lawyer. Schedule a free consultation with an estate planning lawyer at Hunter Sargent, PLLC to learn more about divorce protection.
Asset Protection Planning
When most people think of a trust, they think of the ultra-rich who use trusts and fancy accounting to avoid taxes. And for good reason – as of August 2021, federal estate tax ranges from 18% to 40% of your taxable estate. If you were looking at a 40% tax on your multi-million-dollar estate, you’d want to avoid that kind of cost too!
Protecting assets is indeed an important part of large estates, but even modest legacies can benefit from simple asset protection strategies.
Hunter Sargent, PLLC has the experience and skill to use cutting-edge strategies to help you protect your legacy.
Asset Protection Strategies
Every estate is different and there are many asset protection strategies, but almost all of them involve utilizing both revocable and irrevocable trusts. Some of the more advanced or unique estates require careful use of complex business planning and testamentary trusts.
Some of the trusts we use for asset protection planning include:
- Qualified Domestic Trusts (QDOT) for protecting marital property from taxes when the surviving spouse is not a United States citizen.
- Marital Deduction Trusts for keeping marital assets free from federal transfer taxes upon death.
- Irrevocable Life Insurance Trusts (ILIT) for holding life insurance policies, which leverages the GST exemption and reduces the size of the taxable estate.
- Crummey Trusts for maximizing the annual gift exemption by managing unrestricted gifts to named beneficiaries.
- Medicaid or Asset Protection Plan Trusts for maintaining individual autonomy over assets while safeguarding your legacy from Medicaid or creditors and lawsuits.
- Special Needs Trusts for protecting a special needs beneficiary from losing public benefits while still utilizing trust property.
