Use insurance to manage risk
That's why they use insurance to transfer that risk and protect their assets. Aside from standard insurance policies like health, home and auto, wealthy individuals often purchase life insurance policies to provide for their family after they pass away.
Trust is usually the best structure for asset protection.
Corporation. A corporation provides significant protection for personal assets because it creates a “wall” between you, the person, and your business (and its liabilities) by creating a new and separate entity.
An asset protection trust (APT) is a complex financial planning tool designed to protect your assets from creditors. APTs offer the strongest protection you can find from creditors, lawsuits, or judgments against your estate. These vehicles are structured as either "domestic" or "foreign" asset protection trusts.
If you're an entrepreneur and considering forming a business, you may wonder “Does an LLC protect your personal assets?” The short answer is “yes, it does” in most cases. An LLC is a particular business structure that offers the liability protection of a corporation while giving you the flexibility of a partnership.
An irrevocable trust offers your assets the most protection from creditors and lawsuits. Assets in an irrevocable trust aren't considered personal property. This means they're not included when the IRS values your estate to determine if taxes are owed.
Asset Protection Trusts (APT) are considered to be the strongest asset protection tools available. These are special types of irrevocable trusts where you can be both the settlor and the beneficiary at the same time.
Millionaires don't worry about FDIC insurance. Their money is held in their name and not the name of the custodial private bank. Other millionaires have safe deposit boxes full of cash denominated in many different currencies.
Regardless of your net worth, it's important to protect the assets you've worked hard to build. While some asset protection strategies are designed to meet the needs of the ultrawealthy, other strategies are important for everyone, as they help protect against potential creditors, litigation and taxes.
More rich people are using 'secret' trusts and LLCs to hide money from their spouses. Secret trusts and LLCs are increasingly common ways wealthy people are shielding assets in divorce. Trusts and offshore accounts controlled by a shadowy company.
Finally, the IRS cannot seize any asset that has no equitable value out of spite. If a car or home, for instance, has no value and cannot be sold at auction, it must be left in your possession. Assets that do not have value that can be sold for cash must be excluded from being seized by the IRS.
An irrevocable trust is created to reduce taxes and avoid probate. When you set up an irrevocable trust, you lose all ownership incidents, but this also takes the assets in the Trust off your taxable estate. The income produced by investments in an irrevocable trust is not subject to personal income tax.
Equities are generally considered the riskiest class of assets.
There are a variety of assets that you cannot or should not place in a living trust. These include: Retirement accounts. Accounts such as a 401(k), IRA, 403(b) and certain qualified annuities should not be transferred into your living trust.
Revocable Trusts
Say, for example, that they place their house in a trust, they can then sell the property or remove it from the trust at any time. For these trusts, the assets within them remain part of the grantor's taxable estate, meaning it receives no creditor protection. However, they do avoid probate.
How Much Does an Asset Protection Trust Cost? Asset Protection Trusts in Estate Plans are generally not cheap. For a simple domestic plan that's not complex, legal fees could range anywhere from $2000 to about $4000. More complicated Trusts could run up towards the $5000 range.
As a general rule, if the LLC can't pay its debts, the LLC's creditors can go after the LLC's bank account and other assets. The owners' personal assets, such as cars, homes, and bank accounts, are safe. An LLC owner only risks the amount of money he or she has invested in the business.
LLCs are better at protecting business assets from creditors and legal liability. Trusts can handle many types of assets and are better at avoiding probate and reducing estate taxes. In some cases, both an LLC and a trust may be the best way to manage the estate.
The general rule in all states, including California, is that creditors can't take the money or property of an LLC to pay off the personal debts or liabilities of the LLC's owners. Like corporations, the money or property held by an LLC belongs to the LLC, not the members individually.