5 Ways To Protect Your Assets From Creditors

Even if you’ve worked, saved, and invested your money wisely over the years, you may worry about what can happen to your assets in the event of an untimely downturn in your financial situation. Creditor claims for unpaid loans, consumer debts, divorce, business losses, and bankruptcy proceedings could put the future you’ve planned in jeopardy. The best safeguard for the future is careful planning now. Here are 5 ways to protect your assets and minimize risk:

1. Retirement accounts

When facing claims from creditors, the first considerations you may worry about are your retirement accounts. Fortunately, retirement accounts set up under the Employee Retirement Income Security Act (ERISA) of 1974 are generally protected from seizure by creditors. These include most 401(k) and pension plans. However, rolling funds from a “protected” account to a non-protected Individual Retirement Account (IRA) or Roth IRA could put your savings in harm’s way. An estate planning attorney can help you review whether your retirement accounts are protected from creditors under Federal and New York law.

2. Life insurance policies

A cash-value life insurance policy cannot be “attached” by a creditor to satisfy an unpaid debt. There may be some limitations or exclusions, which you can discuss with your estate planning attorney. Generally, establishing a life insurance policy with a beneficiary other than the policyholder is a safe way to make your loved ones have some additional financial protection in the event of creditor claims.

3. Irrevocable trusts

For some, an irrevocable trust can be a creditor-proof vehicle to transfer your assets to a beneficiary. Since this type of trust essentially removes assets from your estate and into the hands of a trustee, the funds are protected from claims by creditors, ex-spouses, etc. An irrevocable trust can also be crucial in qualifying for Medicaid coverage or nursing home care. Other benefits include potential exemptions from estate taxes. These types of trusts can be subject to scrutiny or even invalidated if they are not carefully planned in advance, however. An experienced estate planning attorney can help you plan an irrevocable trust that will protect you and your family in the best way possible.

4. Section 529 Savings Plans

“529 Plans” refer to Section 529 of the Internal Revenue Code. These are college savings plans that you can open for a child, grandchild, relative or friend as the beneficiary. 529 Plans have tax benefits for both Federal and New York state taxpayers that you will want to discuss with an attorney. In addition, the funds are generally safeguarded from creditors in the event of a lawsuit or claim. In many cases, these accounts are even shielded from bankruptcy claims. Since the law views 529 Plans as gifts to the beneficiary rather than part of your estate, there are built-in protections that can give you and your family some peace of mind.

5. Limited Liability Companies

A properly operated LLC is a separate legal entity from your personal and family finances. As such, you would not be personally liable for any debts and liabilities incurred by the business. If liability is not separated, a business mistake could turn into a tremendous personal mistake. Early and strategic planning will make sure any creditor issues your business faces do not become problems for your beneficiaries.

Don’t wait until it is too late to protect your financial resources. As your neighborhood law firm, Cavallo & Cavallo has decades’ worth of experience providing trusted estate planning guidance to people in our community. Let us help you review your best options and put the proper legal documents in place. Reach out and call or contact our Bronx & Westchester estate planning attorneys online to request a consultation in our office today.

Resource:

dol.gov/general/topic/health-plans/erisa