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Why Protecting Assets is as Important as Accumulating Them

asset protection

Asset preservation has become increasingly important in today’s litigious society. A malpractice or personal injury lawsuit or adverse divorce settlement could put in jeopardy all the assets and wealth you’ve worked your entire life to accumulate.

Given this, it’s just as important to devise asset protection strategies as it is to devise asset accumulation strategies. Such strategies typically incorporate several different tools to help preserve assets, including liability insurance and trusts.

First-Level Asset Preservation

Liability insurance provides first-level asset preservation by protecting assets from exposure if you are found to be at fault in a personal injury or liability lawsuit. Most homeowner’s and automobile policies include a minimum level of liability coverage, typically ranging from $10,000 to $25,000. You can increase your homeowner’s and auto liability coverages for an additional premium amount to receive greater asset protection.

In addition, you might also consider buying personal liability umbrella insurance. This policy will kick in after the liability coverage on your homeowner’s or auto policy has been exhausted. Umbrella policies are typically sold with coverage amounts beginning at $1 million and increasing in $1 million increments.

For example, suppose you have $500,000 in auto liability coverage and a $1 million umbrella policy. If you were found liable for injuries suffered by passengers in another vehicle due to a car wreck, your umbrella policy would cover an additional $1 million of liability above your $500,000 in auto liability coverage, for total liability coverage of $1.5 million.

Trusts as an Asset Protection Tool

Irrevocable trusts are another useful asset protection tool. Assets placed in an irrevocable trust can’t be removed, nor can the terms of the trust be changed. Once you place assets in an irrevocable trust, you have relinquished control over them, which effectively puts them out of your creditors’ reach.

One of the most common irrevocable trusts used for asset protection is a Delaware statutory trust. This type of trust is often used by medical professionals, business owners, professional athletes and entertainers to protect assets from loss due to an adverse legal judgment in a malpractice or personal injury case. A Delaware statutory trust can also take the place of a prenuptial agreement to preserve one spouse’s assets in case the couple gets divorced.

Practically any type of asset can be transferred into a Delaware statutory trust, including real estate, securities (e.g., stocks and bonds), cash and ownership interests in a closely held business. Once these assets are transferred to the trust, they cannot be attached by future creditors in the event of an adverse personal liability judgment, such as causing a car accident that results in serious injury to other parties.

One drawback to this strategy is that you must relinquish some control over the assets placed in trust. However, you can retain certain powers, including the right to receive trust income and principle distributions and direct how trust assets are invested.

Asset Preservation for Future Generations

Irrevocable trusts can also be used as a tool to protect assets for future generations (such as your children and grandchildren) should you ever declare bankruptcy or go through a divorce. The trust will provide your heirs with the future benefit of your assets without transferring actual ownership of the assets to them, thus shielding trust assets from their future creditors.

Meanwhile, you can specify how trust assets and income are to be distributed to your heirs. For example, you can direct your trustee to distribute assets to your children and grandchildren only as needed for their living expenses or education. Or you can direct that assets be distributed when your children and grandchildren reach a certain age.

Keep in mind that trusts may be subject to additional tax filing requirements and higher tax rates than ordinary income and assets. So be sure to talk to your attorney and tax and financial advisors about whether using an irrevocable trust makes sense in your particular situation.

Please contact us if you have more questions about devising asset preservation strategies.


The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC’s (“Frontier”) investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.