Protecting your assets from creditors is an important part of estate planning. There are several different strategies that may be effective. Because individual situations vary and the laws regarding these strategies can be complex, you should only use them with the advice of an experienced estate planning attorney. With that in mind, here is an overview of some techniques for asset protection:
Give certain assets away before any claims arise. When done properly, such a gift may succeed in transferring property while keeping it out of an estate that may face claims from creditors. However, creditors may try to claim the transfer is fraudulent if it is made after claims arise, if the gift makes you insolvent, or if you place limits on the gift such that you still maintain control over the assets.
In the business context, a basic strategy for protecting your personal assets is to operate businesses as limited liability entities, such as corporations or limited liability companies (LLCs), rather than as partnerships or sole proprietorships. However, be aware that if you blur the line between your personal finances and those of your company, you may open your personal assets up to creditors of your business.
At the family level, an important asset protection strategy is for a married couple to hold title to property as tenants by the entirety, rather than as tenants in common. This can prevent one spouse’s creditors from asking the court to partition the property. The laws on this vary by state, but in New York, third parties cannot partition a tenancy by the entirety. However, when a married couple may be subject to estate tax, there are reasons why owning property as tenants in common may be more advantageous.
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