Asset Protection

Patel Law Group is a boutique law firm offering superior service for families and individuals who wish to hand down what they have worked to obtain. An asset protection planning specialist will listen to your circumstances, evaluate the tools available, and provide you with a detailed plan to secure your assets.

We have decades of experience guiding individuals through the process of creating trusts, LLC/LLPs, and other safe havens for their properties and finances. Our team works closely with every client throughout their lives, adjusting and enhancing their asset protection plan as needed.

In Texas, the law allows a substantial amount of protection for specific kinds of exempted assets, such as your home, retirement accounts, and life insurance policies. With the right preparation, your 529 college savings accounts, personal property, and annuities can also be held safely from those who wish to snatch your possessions. Protection for these items comes from the use of various legal strategies.

When something is not exempted, other means can be used to keep others away from your interests. For example, creating Family limited liability partnerships (FLP), Family limited liability companies (FLLCs), gift strategies, and trusts can provide tax benefits as well as protection. In some cases, simply rebalancing your assets will achieve the desired outcome.

Regardless of what combination of approaches you require, your best course of action is to consult with skilled asset protection planning specialists, such as those at Patel Law Group. We offer a thorough understanding of the law, financial strategies, and costly pitfalls. We help you put together the best plan for you, your family, and your business to serve long- and short-term needs.

There are multiple benefits you will reap when you establish a well-crafted and thought-out plan for protecting your assets. Perhaps the foremost advantage is the peace of mind you will have knowing your hard-earned wealth is shielded and secure for your use and as a legacy for future generations. You can focus on enjoying what you have rather than worrying about losing it to a creditor or litigant.

Other key benefits include:

Barring Creditors

Property that is transferred into a trust is protected from potential creditor claims against it. The trust is a separate legal entity that owns the properties, privately keeping your interests out of reach.

Reducing Liability for Business Debts

Using tools such as LLPs and LLCs will minimize the effect that business debts have on your personal assets. When you build a wall between your company and your personal wealth, creditors can only call upon your business assets in a claim. Your home and other properties are protected.

Defending Against Professional Lawsuits

Professionals in high-liability fields such as engineering, law, and medicine carry liability insurance to protect them from claims of malpractice or license violations. If a lawsuit seeks substantial damages, it could outstrip the coverage limits of your insurance. Putting your assets under protection puts them out of reach to satisfy a civil verdict against you.

Providing for Your Family

Most people desire to hand their wealth down to future generations. Domestic trusts and other instruments can protect those assets and ensure they benefit your children rather than the IRS or creditors. You can preserve your financial security during your lifetime for emergencies such as divorce or bankruptcy and shield your heirs from probate and high estate taxes.

Ensuring Privacy

Probate not only costs time and money, but it also makes the contents of your estate a matter of public record. You can avoid this scrutiny and invasion of privacy in Texas by using asset protection tools to keep everything safeguarded.

The last few years have seen a huge surge in the number of small businesses. Many of these are operated as a sole proprietorship, which puts the owner’s personal assets at risk if there is legal or financial peril. Instead of leaving yourself open to loss, consider a family-limited partnership or LLC to secure your wealth.

A family limited partnership (FLC) allows members of the same family to form a business interest and purchase shares for membership. A significant benefit of an FLC is that it keeps money within the family. It also allows members to gift the FLP’s interests to others tax-free, up to the annual gift tax exclusion.

As a negative, however, FLPs are subject to disagreements among members. If one family member incurs significant debt against the partnership, the other participants will be affected. It is also challenging to pass assets to minors in an FLP.

A limited liability company (LLC) is a separate legal entity that protects an individual’s assets from being seized by creditors for debt. It requires more work than a sole proprietorship, but the benefits are significantly higher.

Trusts involve a grantor (or settlor) who creates and funds the trust with money and assets. They appoint trustees, who manage the trust, and beneficiaries, who will receive distributions from the trust. When distributions happen depends on the kind of trust, since some function during the lifetime to benefit the grantor, while others are not activated until the grantor’s death.

Trusts fall into two main categories: revocable and irrevocable. As their names imply, they can be altered and revoked, or they are permanent and cannot be changed once created. Depending on your assets and needs, your estate planning attorney can help you decide which trust is best for you.

Common types of trust include, but are not limited to, the following:

Domestic Asset Protection Trust

These are created within the bounds of the United States, specifically within a state. They allow the grantor to maintain a portion of interest in the trust and protect its assets from creditors. In cases like this, the grantor is also a beneficiary.

However, in Texas, these can be limited by Texas Property Code Section 112.035 (d) (2), which does not extend asset protection to the creator if they are also a beneficiary. Your attorney can take advantage of a loophole that uses a third-party appointee as a trustee to designate the grantor as a beneficiary after the trust is created.

Offshore (Foreign) Asset Protection Trust

Some clients prefer a domestic trust because it is held in the U.S. financial system. For others, this is a negative. They may decide to make use of an offshore asset protection trust instead. Some of the advantages include a more stable economy in the country where the trust resides, as well as enhanced privacy and tax benefits.

These trusts are often fairly expensive to create but could be the best long-term investment, depending on your assets. Your estate planning attorney can guide you in making this decision.

Lifetime Qualified Terminable Interest Trust

In marriages where one spouse has substantially less wealth than the other, a lifetime qualified terminable interest trust may be a solid choice. It makes the most of the less wealthy partner’s tax exemption for federal taxes and protects the wealthier spouse’s assets for life.

Medicaid Planning Trust

Long-term healthcare can deplete your estate before your death, leaving your beneficiaries with much less than you intended. Eligibility for federal assistance is based on your wealth, so you may need to take proactive measures to take advantage of these programs. Using tools such as a Medicaid Asset Protection Trust (MAPT) allows you to structure your assets so you qualify for Medicaid without selling off or losing most of what you own.

This kind of trust ensures your spouse can maintain an income if they are not applying for Medicaid. Upon your death, the federal government will file a claim against your estate to recoup the payments you received if they discover you had unreported assets.

Trusts, FLPs, and LLCs are more involved as legal instruments to protect your interests, but there are additional tactics you can employ that are available to most individuals. Regardless of your level of wealth or income, you can take advantage of tools such as:

Retirement Funds

A sometimes-overlooked option for wealth protection is your employer-sponsored retirement fund. These are protected by federal laws and are typically exempted from bankruptcy claims. Unlike bank accounts or other properties, retirement plans are out of reach from creditors when it comes to civil lawsuits or business debt reconciliation.

Texas Homestead Exemption

Sometimes, the simplest tool for asset protection is freely available. One of these is the Texas Homestead Exemption, which allows you to save money on taxes and safeguard your primary residence from being sold to satisfy creditors. Homeowners must file for this exemption, after which their taxes will be reduced, and they will not face homelessness in the event of financial hardship.

Gifts to Family Members

It may seem logical to simply give assets to your spouse or children to get them out of your name and ensure ownership before you die. However, gifting is highly regulated since it was commonly used to evade taxes before the government enacted laws around it. Gifting can be beneficial but often has some drawbacks with larger asset portfolios.

While the IRS allows you to give up to $17,000 (as of 2023) each year, this may not cover the value of what you want to leave them. In addition, Medicaid has something called the five-year look-back rule, where they examine your financial dealings for the five-year period preceding your application. If they find you have given your assets to your family to meet the Medicaid threshold, they will delay your benefits.

Instead of giving assets directly, placing them in a trust ensures they are private, administered according to your wishes, and conscientiously tended by the trustee. Money or property given away could be sold, spent in a manner opposite your wishes, or lost to creditors.

Rebalancing Assets

This method primarily focuses on preserving the wealth you have generated in stocks and other investments. As you age, you will have less time to recover financially from substantial market activity, such as corrections and recessions. For example, if you lost wealth during the 2008 crash, you likely had time to rebuild it before retirement. If the same thing happens when you are merely 15 years from retirement, you may not have the opportunity to earn it back.

Rebalancing from heavy stock positions to one more grounded in funds and bonds can hold your earnings steady. A skilled financial advisor or estate planning specialist can advise you on how to make the change and where to put your assets. This is not an everyday action, but checking in every six to twelve months to reassess allows you to react quickly to market fluctuations when needed.

There are tax implications with rebalancing, especially if your investments have increased in value or you are attempting to short the market. However, your attorney can recommend strategies to reduce these negatives.

Reaching your wealth goals takes careful examination and planning to ensure what you have worked hard to secure stays protected. Handing down what you have built is not as simple as drawing up a will. It takes measured and thoughtful consideration of your full portfolio and wishes.

The asset protection team at Patel Law Group is ready to discuss your needs and build a strategy that will benefit you and your beneficiaries for years to come. Contact us to schedule an in-person meeting today.