You’ve worked hard for what you have, and deserve the peace of mind of knowing it will be protected. Asset protection offers customized ways to secure what you have from the uncertainties of life. These strategies are also useful for ensuring that you can leave a legacy for your family.
Estate planning doesn’t just mean deciding who gets what after you pass away. The attorneys of MacKay & Martin, LLP understand the importance of creating a comprehensive approach to anticipate risks and work to minimize their impact on your estate.
What Is Asset Protection?
Put simply, asset protection is preserving your money and property from the many threats that could deplete them. In the context of estate planning, this includes ex-spouses and taxes. Many people believe that asset protection is only the province of the super-rich. In reality, if you have accumulated any amount of wealth, your goal should be to protect it – for yourself and for those who will inherit from your estate. This means anyone with the following assets should seriously consider long-term planning:
- Homes and other real property
- Stocks, bonds, and other securities
- Pension and retirement plans
Knowing what to protect is only half of the strategy. You also need to understand how these assets can come under attack – and what to do to minimize risk. What follows are some of the best asset protection strategies.
How Can I Protect What I Have from Divorce?
Some people with significant wealth remarry later in life, and they want to ensure that their children can still inherit from them after they die. Others have accumulated money and property but are concerned that a divorce could deplete assets that would otherwise go into their estate. A divorce could result in your ex-spouse walking away with a significant portion of what you have worked to earn.
One of the best ways to protect assets is to plan before divorce even enters the picture. Two particular strategies help: the prenuptial and postnuptial agreement. A prenuptial agreement is a contract that two people enter into prior to marriage that stipulates (among other things) how assets will be handled in the event of a divorce. You can use a prenuptial agreement to decide ahead of time what property an ex-spouse will – or will not – have the right to if you later split. These are especially popular for individuals who remarry and want to secure assets for their children from a previous relationship.
If you did not enter into a prenuptial agreement prior to your marriage, you can still devise a similar plan known as a postnuptial agreement. Like a prenuptial, a postnuptial agreement can help you build financial protections for your eventual heirs. The attorneys of Mackay & Martin, LLP are well-versed in drafting these legal instruments in a way that is both fair to your spouse and comprehensive enough to secure what you have for your other heirs.
What Do I Need To Know About Estate Taxes?
Perhaps the biggest threat to one’s estate is taxes. California currently has no estate tax, but the federal tax still applies. In 2019, the current exemption for the federal tax is $11.4 million. This means that someone can leave up to $11.4 million (or $22.8 million for a married couple) to heirs and pay no federal estate or gift tax. Moreover, the tax exemption is “portable.” This means that if the first spouse to pass away does not use up the exemption, the surviving spouse can add the unused portion to his or her own exemption. It is also worth noting that you can make tax-free gifts of up to $15,000 per beneficiary. However, you may be required to file a gift tax return, even if no tax is due.
Estates that exceed the $11.4 million cap are subject to a 40 percent tax. But there are ways to avoid or minimize the impact of taxes; perhaps the best way is to use a trust.
Trusts and Asset Protection
A trust is created when one person (the trustor or settlor) places money, property, and other assets into a legal instrument known as a trust. An individual known as a trustee agrees to hold and manage the property according to the terms of the trust. These have a number of advantages for protecting estates.
First, a trust may be used to avoid probate. Probate is the process by which a deceased person’s estate is distributed to heirs. Probate in California is a particularly expensive process because of fees assessed on the gross value of the estate. Anyone with significant assets should take steps to avoid these costs. In California, a revocable living trust may be used to avoid probate on just about any asset a person owns. During your lifetime, you can place assets into the trust. After you die, the trust becomes irrevocable (meaning, its terms cannot be changed). This type of trust has the added benefit of maintaining a family’s privacy by avoiding the public probate process.
Second, a properly structured trust may be used to avoid or minimize estate taxes. An individual can typically use what is known as an irrevocable trust to keep assets out of the estate and therefore away from estate taxes. These instruments can also be used to keep income from trust assets separate from one’s personal income, thereby minimizing taxes. Trusts that are used to avoid taxes are subject to more restrictions, so having an experienced estate planning attorney is essential.
Protect The Estate You’ve Built
There are multiple potential threats to your estate. Fortunately, there are also numerous legal techniques you can use to your advantage. Let the attorneys of MacKay & Martin, LLP help. We can discuss the above strategies and many others that can be used to protect your legacy. Call us today to schedule a consultation.