In the Best and Worst of Times…. Asset protection is always a must!

Many individuals are currently experiencing difficult financial times. Whether these difficulties are a result of a public health crisis, an economic crisis, or a self-made crisis, the common denominator is that personal finances have been severely impacted. When personal finances are impacted, many people tend to slide into survival mode, like a bear storing up fat for winter hibernation! While this may be a way to preserve resources, one must also remember that the preservation of assets is just as important!

Generally, when tough financial times arise, litigation, i.e. lawsuits increase in popularity as a way for businesses and individuals to recoup money that is owed to them or allegedly owed to them, as some lawsuits may be frivolous. Before one finds themselves in this situation, asset protection planning is the best defense to have on hand. Asset protection insulates assets from claims of creditors without concealment or tax evasion and it’s legal!

Regardless of what caused your financial situation, consider these seven recommendations which may benefit you:

Take care of your health

Your health is your first wealth. Taking care of your health is an investment in yourself that you cannot afford to overlook. As P.T. Barnum famously stated, “The foundation of success in life is good health: that is the substratum fortune; it is also the basis of happiness. A person cannot accumulate a fortune very well when he is sick.”

Streamline your household budget

Reduce your household budget and focus on the essentials; i.e. food, shelter/utilities, and transportation. Consider canceling magazine subscriptions, gym memberships, and cable television as these are not necessities. Since cell phones and internet services have become necessary in many households, negotiate with service providers to offer you a lower rate.

Communicate with creditors

Communication with your creditors is key. Explain your financial situation, because not communicating and avoiding them will only make matters worse! Also, become familiar with the Fair Debt Collection Practices Act (FDCPA) and know your rights if your debts are turned over to a collection agency. If collectors are harassing or threatening you, they are violating the FDCPA and should be reported in writing to the Federal Trade Commission and their state’s attorney general’s office or the Department of Consumer Affairs.

Maintain insurance policies

Insurance is the first line of defense in asset protection. If one can afford to, maintain homeowners, auto, rental, and life insurance. Also, purchase an umbrella policy that provides additional coverage above the liability limits of homeowners and auto insurance policies.

Retirement and college savings accounts

Stop contributing to retirement and college savings accounts. When your financial situation changes, you may resume these contributions.

Do not withdraw funds from your retirement accounts

If financially possible, refrain from withdrawing funds from your retirement accounts. If you withdraw cash or take a loan from an IRA or 401k before age 59 ½, you will likely owe both federal income tax and a 10% penalty on the amount that you withdraw, in addition to any relevant state income tax. During the time of the writing of this article, Congress passed legislation (The CARES Act) which allows individuals who have suffered financial or health consequences as a result of COVID19 (coronavirus) to pay back funds withdrawn from a qualified retirement plan over a three-year period, waive the 10% penalty and have the amount withdrawn recognized as income for tax purposes. However, interest will continue to accrue on these delayed payments.

If you do make a withdrawal, once those funds are deposited into a checking/savings account, they can be seized if a creditor wins a lawsuit against you. 401k plans are protected by the Employee Retirement Security Act of 1974 and if a lawsuit is filed against you by creditors your 401k is generally protected. Therefore, money in a 401k should not be used to pay the debt (medical bills, credit cards) that can be discharged in bankruptcy.

Have an asset protection plan

Asset protection planning consists of utilizing structures to construct a multi-layered approach to protect wealth. It’s important to note that asset protection planning is not just for the wealthy, its intent is to preserve and protect the lifestyle you worked so hard to achieve.

In closing, asset protection is most effective when it’s done before a lawsuit occurs. It’s also important to work with an asset protection attorney who understands the laws in your state and will construct a plan based on your needs.

Michele Williams
www.assetprotectionprimer.com
August 2020