What is Asset Protection Planning?

Asset protection planning is a term used to identify the various strategies and techniques that are used to protect different types of assets from claims made by creditors. The idea is to arrange the assets in a manner that makes it difficult for creditors to seize control of the assets in the event that the owner experiences some type of financial setback. Effective asset protection planning makes it possible for the owner to determine which assets to liquidate in order to settle debts, and which assets will remain in the possession of the owner.

There are a number of ways to go about the process of asset protection planning. The exact strategies that are likely to work best for any given investor depend on the nature of the assets and the amount of holdings that the investor actually possesses. Often, the best approach to any asset protection planning is to consult with an attorney. Doing so makes it possible to identify strategies that are both legal and relevant to the needs of the investor, and utilize those strategies in a way that ultimately lends additional strength to the asset portfolio.

Several strategies are often employed as part of the asset protection planning scheme. One has to do with the establishment of trusts as a way to protect assets from future creditors. With this approach, funds are placed into trust funds and can only be withdrawn for purposes that are identified in the fund’s provisions. With this approach, the principal placed into the trust would remain intact even if the beneficiary of the trust were to undergo some sort of financial reversal. Depending on current laws, the creditor may be able to lay claim toany disbursements made from the fund, such as a monthly payment that is based on the returns earned by the fund’s assets.

One of the benefits of asset protection planning is that the strategy can act as a deterrent for creditors to seek judgments on debts. If it is clear that a great deal of time and money could be spent on trying to gain control of the assets, and that there are no guarantees those efforts would be successful, the creditor may be willing to work out some type of settlement in order to retire the debt. This means that a properly planned and executed asset protection scheme could result in avoiding lawsuits and minimize some of the damage to the credit rating if circumstances make it impossible to settle outstanding debts in full.