This may be the right moment to consider both protecting your assets from creditors’ claims and limiting your liability to persons who may be injured on your property. Estate planning techniques may be utilized to provide the added benefits of asset protection and limited liability.
A fairly simple, but effective, step in the direction of asset protection is transferring ownership of your assets from yourself individually to your trust. While creditors can reach the assets owned by your trust, creditors may be slowed down or deterred by the fact that you do not own assets in your name individually. When creditors have to pursue a trustee to get paid, the collection process is more complex and, therefore, may slow down.
Creating entities, such as family limited partnerships or limited liability companies for estate planning purposes gives you asset protection as well. Creditors do have rights against a limited partnership or LLC, but they can be paid only out of distributions from the entity, not from the underlying assets. To qualify for this protection, the entity truly must be operated as a separate entity, but if you are willing to expend the effort and pay the costs involved in operating the entity, it protects your assets and limits your liability to creditors.
If you want to create a trust for the benefit of someone other than yourself, you may choose to utilize a “discretionary spendthrift trust” to authorize the trustee to distribute any amount, or no amount of funds to your beneficiary. This type of trust is used to shield your assets from the beneficiary’s creditors.
Finally, eleven states now have enacted legislation allowing you to create a trust, funded with your own assets, for the purpose of protecting those assets from your future creditors. Some people are questioning the validity and enforceability of such a trust, but certain states currently will allow you to utilize a trust specifically for creditor protection.
For more information, please feel free to contact Strauss & Troy at 513-621-2120.