Wealth Preservation

If you have been carefully and diligently building up your estate over several years, you might be at or near the point where the need to protect what you have built up begins to eclipse the desire to keep on building. This is where a strategy of wealth acquisition shifts to one of wealth preservation.

Our purpose here is to show you how legal asset protection strategies can form an integral and key part of your wealth preservation efforts.

Working with the right team is fundamental to preserving your wealth and as Attorneys, we believe strong legal documents and strategic financial planning go hand in hand.  The goal is to preserve your wealth with the assistance of advisors, who are trained in the areas of Elder Law and Retirement Planning. Most people spend the majority of lives working and building their estate for the benefit of themselves and their family and still so many people lose their entire life-savings because of lack of planning.  As you approach retirement, many of us start to worry about whether we will outlive our money.  With this mind, our goals begin to change and it is important that our financial portfolio changes as well.

What is wealth preservation?

Wealth preservation is one of those occasional examples you see of truth-in-advertising: it means exactly what it says, concerning tools and methods to keep from losing what you have acquired. It is also known by other names, such as preservation of capital.

Wealth preservation consists of two intertwining threads: adapting your saving and investment strategy to more risk-averse vehicles, and building legal defenses to protect what you have from people who might try to use the courts to take your money and property from you. Our main focus is on the second of these two threads.

What are some of the legal threats to your wealth?

Financially, many Americans today are running on a treadmill that for them seems to be running faster and faster: “winning” in such a scenario becomes little more than making it to the beginning of the next pay cycle without being thrown off first.

  • For more than half of Americans, their primary money concern is simply keeping caught up with their bills, and almost as many do not believe they will be able to save enough to retire comfortably.
  • About four in ten cannot stay caught up with their expenses and save money at the same time, or are resigned to working until they die.

When people perceive themselves as being in a steadily deteriorating situation, their hopes for escape increasingly turn to “miracle” solutions. When it comes to money, this leads to assorted “get rich quick” ideas, and unfortunately one of those is what we can call “the legal lottery:” look for an individual or business who has valuable assets, and sue that person or company in the hope of getting a slice of those assets through litigation or settlement.

America has an earned reputation as being one of the most, if not the most litigious society in the world. Although there are many plausible contributing factors to why that is, such as better access to courts and the lack of a “loser pays” system for court judgments, the net effect is that you have a good chance of getting caught up in a lawsuit at some time in your life, and that chance increases if you have considerable assets.

Where do wealth-targeting lawsuits come from?

People who want to get at your money and property can come from anywhere around you. You can get into a “fender-bender” accident (or your teenage child can with the family car), and the other driver will make a personal injury claim for soft-tissue damage. If you are a professional, a client or customer can sue you for malpractice. If you own property, a person can claim to have been injured while on it and file a suit for premises liability. If you own a business, your own business partners, employees or investors can claim that you violated your duties to them, fiduciary or otherwise. The threat can even come from within your own home, if your spouse decides to divorce you.

You can try to be as careful as possible, to become the living example of what courts call the mythical “reasonable person” who makes all the right decisions to avoid being held culpable for harm to someone else. And you can still find yourself on the receiving end of a summons and complaint, because you can’t predict or control what other people are thinking and doing, particularly if they have designs on what you have.

You need to take proactive defensive measures, things that go beyond having a good lawyer to respond to that summons and complaint, so that even if you can’t prevent someone from looking at you like a get-rich-quick miracle and suing, you can discourage that person and his attorney from persisting with that notion. This means shielding your assets.

What are some asset-shielding tools and techniques?

There are several things you can do to lower your risk profile as a settlement-or-judgment opportunity. Some are simple, others more complicated; some make sense for almost everyone, others tend to be more appropriate if your estate is one of high value. Here are a few examples:

  • Think about insurance. At a minimum, it is a good idea (or state law) to carry automobile insurance, and a homeowner’s policy is another way to limit the impact to your estate from litigation or other legal claims. If you have any liability, insurance is your first line of defense against claims against your assets. “As much as you can reasonably afford” is a good answer to the question of how much insurance you can carry, but remember that it should be one part of your overall wealth preservation plan. You will want multiple lines of defense.
  • Move your assets out of range of litigation. While you often cannot physically place your wealth out of reach of others who would use the legal system to access it, for many kinds of property you can still make them harder to get at by transferring their ownership into one of a variety of trusts. Many people and their attorneys think of trusts as an estate planning mechanism, but aside from avoiding probate costs and delays and lowering potential estate tax exposure, a trust can also provide legal protection: even if a lawsuit against you is successful, the judgment ordinarily can reach only those assets that you own.A simple type of trust that can do this is a living trust for your family assets like your home and personal property. Particularly with a revocable living trust, you can still enjoy most of the benefits of ownership and yet still not be the “owner” in the legal sense. At the other end of the spectrum is the offshore asset protection strategy, like a Cook Islands asset protection trust, that makes your capital even harder to discover or to reach because both trustees and courts in that jurisdiction generally do not respect foreign court orders and judgments.
  • Consider more specialized forms of asset protection. Creative wealth planning can include various forms of “borrowing against yourself” in the form of borrowing money against the accounts receivable and the equity of your business. Family limited partnerships are an alternative to a living trust for shielding your personal assets against liability.

Are there any downsides with wealth preservation?

Wealth preservation done the wrong way can not only fail to protect your estate, it can backfire and create civil and criminal liability for you and your business. For example, The Internal Revenue Service aggressively pursues those who attempt to hide assets in offshore accounts, so it is essential to avoid participating in any arrangement that can be construed as trying to hide cash or other assets from the government. The point of shielding your assets is not to make what you put into them “invisible,” but to put them out of easy reach for those who want to use the legal system to seize them.

Creating and maintaining a wealth preservation plan can be an investment of its own. For forms of irrevocable trusts, making changes after the initial transfer of assets to the trust can be problematic or even impossible. Foreign trusts of most any kind are now subject to intense Federal government scrutiny for suspicion of fraudulent or tax avoidance purposes, and the recordkeeping and reporting requirements on these trusts are now formidable.

How detailed your wealth preservation plan should be depends heavily on how much wealth you need to preserve. A good plan is one that provides sufficient protection for your estate without become too cumbersome for the benefits it provides; you can have “too much of a good thing.”

Get professional assistance with your wealth preservation plan

You should not what you read here as providing a definitive look at wealth planning, or as any kind of legal advice. The topic is too varied and too complex to discuss all of its considerations in one article. Our purpose is to provide you with a starting point to launch your wealth preservation journey.

Having the right wealth preservation plan gives you a number of benefits, not the least of which is peace of mind. You can make it so difficult for litigants and creditors to reach your estate that this might deter them from going to court in the first place, and realize these benefits completely legally.

When you are entering into your wealth preservation planning, you should work closely with professionals in multiple disciplines such as accounting, tax, trusts and estates, partnerships and other small business entity laws, and retirement planning to make sure that your plan is customized exactly to your objectives and needs and avoids legal pitfalls that could defeat its purpose.

Work with an Experienced Wealth Preservation Attorney

Our strategies can help reduce the estate, gift, income and capital gains taxes that you may incur without proper planning, and in turn minimize or eliminate the probate process.  Wealth preservation means ensuring you have the assets and confidence you need to live for as long as you do, because we believe good planning is no accident. Contact us to find out more!