Based on the growing concerns that accompany life today, such as the risk of litigation, incapacity, divorce, and potential remarriage, individuals have an increased interest in asset protection strategies. Fortunately, there are several preventive measures to shield assets without establishing trusts.
One consideration in shielding assets is determining ownership through the titling of assets. A second and often critical layer of defense is achieved by adequate insurance coverage. A third technique involves the establishment of one or more limited liability entities. The last technique we will discuss is the prenuptial agreement.
When titling assets, individuals may achieve separate ownership by placing certain assets in their spouse’s name. By doing so, a couple may protect such assets from future claims against the spouse who donated the asset. Another option for married couples is to title marital assets as a tenancy by the entirety to shield the asset against creditors. Under such ownership, however, if a spouse dies, rights of survivorship is triggered and the surviving spouse’s creditors may levy against such assets.
Qualified retirement accounts such as IRAs and 401(k)s are typically not subject to third party creditors. Besides minimizing income taxes, establishing and fully funding retirement accounts may reduce your exposure to third party claims.
Insurance is often an easy and cost effective way to minimize one’s liability exposure, even if other measures are already in place. While some events, like divorce, cannot be insured, adequate insurance can cover the cost of defending lawsuits and safeguarding assets. Upon death, in Tennessee, life insurance proceeds are not subject to creditor’s claims.
It is often advisable to place assets which carry certain risks with them in separate limited liability entities. Claims against a corporation or limited liability company are generally limited to the assets within the entity and assets titled outside the entity are not recoverable. There may be certain tax costs, however, associated with limited liability entities so it is always best to first consult with an experienced legal or tax advisor before implementing such a device.
Finally, in Tennessee, establishing a prenuptial agreement in contemplation of marriage is the best way to ensure your assets will not be divided up or dissipate if divorce occurs.
Trusts are only one mechanism by which to protect assets from future third party creditors. An experienced estate planning attorney can advise and assist you in establishing a personalized plan to protect your assets.