Dec 1, 2021 The Importance of an Asset Protection Plan

Protecting personal assets from potential creditor claims, legal judgments, and other sources of liability requires advanced planning. Whether assets were accumulated from a lifetime of hard work, selling a business, wise investments, or receiving an inheritance, an unexpected turn of events can put a person’s wealth at risk. With the help of an experienced estate planning and asset protection lawyer, those assets can be secured for you.

Legal Asset Protection Options

The law provides many different methods of protecting your valuable assets. Some of the most common examples include the federal Employee Retirement Income Security Act (“ERISA”)-qualified retirement plans established by an employer, including 401Ks, deferred compensation plans, and plans for profit sharing. These plans are created in compliance with ERISA,  and are generally safe from creditors. Other retirement accounts are not ERISA-qualified and may be accessible to creditors unless protected by state law which varies widely across the country.

In New York, New Jersey, and Connecticut, state law shields 100% of the assets held in traditional and Roth IRAs, SEPs (Simplified Employee Pension Plans), SIMPLE (Savings Incentive Match Plan for Employees) IRA plans, and others. But, retirement plan contributions are not the only asset most individuals and families need to protect.

Estate Planning Vehicles to Protect Assets

Estate planning is a specialized legal practice in which attorneys concentrate their expertise on the legal tools and instruments available to each client for the tax advantageous preservation and protection of their clients’ wealth and property, and plan for the ultimate distribution of their assets.

Asset Protection Trusts (APT) — Shielding personal assets from creditors and most holders of lawsuit judgments may be accomplished by transferring legal title of the asset from its personal or corporate owner to an asset protection trust. Trusts are legally recognized entities created by a settlor (or donor) into which assets are legally transferred and held under terms set out in the originating trust documents. Once transferred into a trust, the assets are no longer owned by the settlor, and are not generally accessible to the settlor’s creditors.

But, an effective Asset Protection Trust must be established before a potential claim appears on the horizon. Unless the APT preexists the events from which the potential claim arises, the creditor may claim that the trust was intentionally created to wrongly deny the creditor access to funds that would have otherwise been available to satisfy the settlor’s debt. Attempting to shelter assets from a creditor by creating and funding a trust after a creditor claim arises and collection activity is anticipated can lead to a court deeming the action a fraudulent transfer.

Although high net worth individuals in particular are especially vulnerable to lawsuits, everyone’s personal financial assets, high net worth or not, deserve to be protected from unnecessary liability threats.

Prior planning long in advance of any potential financial claim is the surest asset protection strategy.

Preserving Assets and Elder Care Strategies

Aging brings everyone inevitable life changes. Planning for elder living involves deciding how to afford the cost of long-term care if necessary. Whether an older person requires short-term institutional rehabilitation, or lengthy nursing home care, or they remain home with visiting nurses and homecare (health aide) assistance, these services are quite costly. They cost more than most people can pay, and can quicky exhaust  most of the money they worked a lifetime to save.

New York State administers several Medicaid programs to pay the expenses of elder care for those who qualify for benefits. But, Medicaid eligibility is limited to those whose non-exempt assets are $15,900 or less.

At Ely J. Rosenzveig & Associates, our attorneys creatively use established law to help hundreds of elders and their families protect their financial assets and still qualify to receive available Medicaid benefits for the long-term and chronic care they need.

But, the law provides that any asset transfer executed by a Medicaid applicant for nursing home care benefits, during the five years prior to their filing for benefits, can be reviewed and may result in a denial of benefits. Early asset protection planning is strongly advised. Even if non-exempt asset transfers were made within the five-year look-back period, our experienced Medicaid asset protection lawyers can still take steps to preserve your property and other assets to the degree possible under the law.

Note as well that different rules apply regarding the look back period when the benefits sought are for home care in New York. In fact, until recent NYS legislation introduced a 14 month non-exempt asset transfer look back period for Medicaid home care that will ultimately grow to 30 months, there was no look back period for Medicaid home care applications in NY. That is, a Medicaid home care benefits applicant in NY could transfer all his/her assets in one month, and apply and qualify for benefits the very next month. 

The time to identify your asset protection strategy is now. Let Ely J. Rosenzveig & Associates preserve your eligibility for elder care Medicaid benefits while keeping your assets safe.

Limited Liability Company (LLC) and Choices of Business Entities with Asset Protection

When you are considering the formation of a new business, choosing the appropriate form of business entity will determine what degree of personal financial liability the principals will face. Those who wish to shield their personal assets from the debts and liabilities incurred by the business should consider a Limited Liability Company (LLC). An LLC can be formed by one or more individuals whose personal liability is limited to their company’s assets. Other forms of business entities include Limited Liability Partnerships (LLPs) and corporations whose organizational structure limits the reach of the company’s creditors and other claimants against the business only to the company assets. Unless the LLC member, LLP partner, or corporate officer personally contributes to a claimant’s injury, or personally guarantees a company note, the owner’s personal assets cannot be accessed to satisfy a claim.

Every asset protection strategy must also plan for minimizing tax liability. Each of the forms of business entity discussed here carries important tax treatments that a new business owner must evaluate before committing to any one company structure. For more complex business organizations, expert legal counsel is needed to plan the enterprise structure.

Asset protection law is of paramount importance to every business owner, whether they are  establishing a new business, or they own an existing business enterprise and need to implement an ownership and management succession strategy. 

In 2021, the individual federal estate and lifetime gift tax exemption (Basic Exclusion Amount [“BEA”]) is $11.7 million dollars. This number is indexed for inflation. In 2022, it will increase to $12.06 million. But, in 2026, unless Congress acts to change the current law, the BEA is scheduled to be reduced to $6 million. The current New York State estate tax BEA is $5,930,000.

Every individual and family considering how best to transfer accumulated wealth to the next generation should protect those assets from unnecessary tax liability. Experienced estate planning attorneys will explain and draft the appropriate legal instruments to achieve each client’s financial goals in a tax effective manner.

Contact Ely J. Rosenzveig & Associates to learn more about how our dedicated attorneys can assist your family with its unique needs. Call +1 (914) 816-2900 or email us at [email protected] to schedule your consultation today.