3 Common Types of Asset Protection

June 7, 2016

Clients often ask what steps can be done to protect their assets. My typical response: “what type of asset protection are you interested in?” Most clients aren’t quite sure how to respond… they are unaware that there are different types of asset protection available. The 3 most common types of asset protection I help clients with are:

  1. Asset Protection from Medicaid. Medicaid is a health program administered through the states. Missouri’s version of Medicaid is called Mo HealthNet. Medicaid provides very valuable care for those with limited financial resources. This is often the case with elderly individuals who go into a nursing home. Since nursing home care is expensive (thousands of dollars per month), elderly individuals are often very interested in steps they can take to protect some of their assets for their loved ones. The most common tool we use for this is called a Medicaid Asset Protection (MAP) Trust. One common use of a MAP Trust is to protect real estate so that it passes to a client’s children instead of having a lien placed on it by Medicaid.
  2. Asset Protection from Business Liabilities. Most business owners have the fear of “What if…”. “What if my employee does something and as a result I am sued?” “What if my product injures someone?” “What if a customer is injured on my property?” The answer to those “What ifs” is to plan. Part of that planning is certainly insurance. Yet, another part is structuring your business (businesses) the correct way to minimize liability. Whether your business is an LLC, S-Corp, or C-Corp, there are steps we can take to minimize an owner’s personal liability for business incidents.
  3. Asset Protection from Lawsuits. Almost daily you hear about someone getting sued. Sometimes the claims have merit. Other times the claims are frivolous and a waste of time, energy, and money. Planning ahead is important to minimize your personal liability. Especially if you are in a higher risk profession (doctor, pharmacist, lawyer, etc.), planning today is critical for asset protection tomorrow. This planning ranges from the simple (titling assets or establishing LLCs) to the complex (offshore trusts with professional trust protectors).

Protecting assets is doable… the initial steps are straight forward and simple… the key is asking the question and getting started before you need it. There is no silver bullet for asset protection. Instead, think of it as layers of protection. Get started building your layers of asset protection today.

What is Tenancy by the Entirety?

February 17, 2016

Tenants by the Entirety is based on the longstanding idea that when a man and woman marry, they create a new entity, a marital unit. Thus, husband can own property, wife can own property, and the marital unit can own property as tenants by the entirety.

Tenants by the entirety is separate and distinct from tenants-in-common or joint tenants. In tenants by the entirety, husband and wife don’t own 50% but rather the marital unit owns 100% of the property. As a result, neither spouse can sell tenants by the entirety property without the consent of the other spouse.

So why hold property as tenants by the entirety? The big (actually it is huge!) advantage is asset protection. In Missouri, tenants by the entirety property cannot be subject to an individual spouse’s debts.

For example, Husband and Wife own their house worth $250,000 as tenants by the entirety property. Husband goes through a mid-life crisis and buys a top-of-the-line Mercedes, a new Harley-Davidson motorcycle, and then takes a 30-day luxury vacation across the globe. All the while, wife continues her normal, responsible life. If (perhaps when…) Husband stops making payments on his new car, motorcycle, and vacation, his creditors will come after him for payment. They will likely end up suing him and receiving a court judgment against him. That judgment will allow his creditors to go after and collect from any of Husband’s separate property. But so long as Wife hasn’t co-signed on these debts, Husband’s creditors will not be able to collect against their marital assets, namely their home, since it is owned as tenants by the entirety.

Tenants by the Entirety is a very powerful tool. Especially for individuals in professions where there is a higher risk of being sued (doctors, pharmacists, lawyers, etc.) tenants by the entirety can help protect your assets. Consider how this could help provide asset protection to a doctor when faced with a medical malpractice lawsuit.

Further, in 2011 the Missouri Legislature created what is called a “Qualified Spousal Trust” (QST). A QST is able to hold tenants by the entirety property and preserve the asset protection features of tenancy by the entirety. This is especially important for clients who may have older estate plans, to consider updating their estate plan to take advantage of the new law.