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Home > Blog > Estate Planning > 10 Common Mistakes In Asset Protection

10 Common Mistakes In Asset Protection


Whether you are just starting to consider an asset protection plan, or have already begun, you may be aware of some important things to check off your list. You’ll also need to remember some things to avoid as you plan ahead, and common mistakes others make: 

  1. Not Making an Estate Plan in Combination with Your Asset Protection Plan

While an asset protection plan can account for contingencies during your lifetime as well as for your heirs, an estate plan only concerns distribution of assets after death. It is always best to create a proactive strategy for your assets and your estate in combination, to account for all potential issues. An unexpected death in absence of a will and estate plan, for example, can wreak havoc on aspects of an asset distribution plan you laid out previously.

  1. Failing to Separate Business Assets from Personal Assets

Many business owners believe – falsely – their assets are protected by the “corporate shield”. Under this concept, creditors cannot reach the personal assets of a business owner or their spouse. In reality, creditors can – and will – levy against any personal accounts that have been commingled with business assets. Better planning and the proper use of corporations, partnerships, LLCs, etc., can protect your family’s personal assets against business liabilities.

  1. Using the Wrong Type of Trust

Benefits of irrevocable trusts include protection from creditors and estate taxes, if created properly. While revocable trusts offer flexibility (changing beneficiaries, modifying terms, etc.), they don’t offer the safety that an irrevocable trust can provide. If any element of control is retained within the trust by the grantor, there can be costly exposure to creditors.

  1. Not Customizing Your Plan to Your Circumstances

Everyone’s situations are different, and an asset protection plan that works for one person may not work for another. Your plan must be tailored to your financial circumstances – and risks – to ensure the best possible outcome. Following forms that you’ve found online, received from a friend, or heard about from a tax advisor can create unexpected problems for you and your beneficiaries down the road.

  1. Failure to Identify Potential Creditors

Identifying potential creditors you may have in the future can help you plan effectively to protect your property from those entities. Some examples of possible creditors include:

  • The IRS
  • Judgment creditors, particularly for business owners with various debts and liabilities
  • Medical malpractice claimants for doctors
  • Legal malpractice claimants for attorneys
  • Credit card lenders
  • Servicers of loan accounts for business, personal, and student loans.
  1. Assuming an Asset Protection Plan is Illegal

It is not a “dodge”, “scheme”, or fraud to arrange your hard-earned assets in a way that best suits your individual and family’s situation. This is particularly true when you plan in advance and start as early as possible – before any issues arise. Shifting assets after you’ve been notified of an adverse claim can expose you to allegations of fraudulent transfers or obstruction, however.

  1. Not Updating Beneficiary Designations

Over time, people often forget to change beneficiary designations to match their wishes. A previously-listed beneficiary, for example, might have died, become incapacitated, or simply fallen out of favor. Check back with your life insurance company and retirement-account holders, for example, to make sure the correct beneficiaries will receive those assets in the event of your death.

  1. Not Leaving an Inventory of Assets

Even if you’ve created an estate plan and a detailed asset protection plan, the property and accounts in them aren’t worth much unless your heirs can find them. Every day, for example, New York returns approximately $1.5 million in unclaimed funds that were previously unknown or ignored. This often happens because someone dies or becomes incapacitated, but their assets cannot be identified.

It is crucial, as part of an estate or asset-protection plan, to verify and identify the location of each asset, such as:

  • Property deeds
  • Bank and credit accounts
  • Life insurance accounts
  • Retirement accounts
  • Mortgages
  • Securities documents
  • Safe deposit information
  • Digital assets, such as cryptocurrency and other online sources of revenue
  1. Doing Nothing, or Waiting Too Long

If you wait until creditors are knocking at your door to think about asset protection, you are probably too late. Unless you have no valuable assets to protect or have no worries about future financial liabilities or lawsuits, the time to act is now.

Granted, it can be stressful to think about the unforeseen financial problems. It is human nature to fear the unknown and focus on your current issues instead. Planning for the future is what lawyers are for.

  1. Not Consulting with a Qualified Attorney Specializing in Asset Protection Planning

Navigating the rules involved with various trusts, LLCs, insurance and retirement accounts is a lot for any one person to handle. “Do it yourself” projects are for home improvement, not asset protection planning. Along the same lines, you want to find somebody well-qualified to review your hard-won financial assets.

Many attorneys offer asset protection services, but not all have the skill, experience, and in-depth knowledge of Federal and New York law to effectively create your plan. You will want to work with a law firm that has been there before with hundreds of clients in your area.

Our Attorneys Can Help You Today

At Cavallo & Cavallo, you can count on us to provide the trusted legal guidance you need to protect yourself and your loved ones in the years to come. To discuss ways to protect your digital assets as part of your will and estate plan, call or contact our Bronx & Westchester estate planning attorneys online and request a consultation in our office today.



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