If you are worried about being sued and having assets taken from you, having an estate plan can help you protect yourself. A Washtenaw County estate administration attorney from our firm can work with you to figure out which kinds of tools you can use to protect what you have and ensure that something gets left behind for your loved ones. Let’s look at some common ways to protect yourself from lawsuits.
How Estate Planning Helps Protect Assets From Lawsuits
Though estate planning is integral in determining how your assets will be divided among your loved ones after your passing, you can also benefit from the asset protection estate planning can provide. With proper legal guidance, you can help reduce the risk that your property will be subject to lawsuits or collection efforts during your lifetime and after your passing.
Benefits of Proper Estate Planning
- Certain estate planning tools can separate you from legal ownership of assets, thus protecting them in the event of a lawsuit
- Asset protection must be completed prior to the filing of a claim
- Michigan allows for Domestic Asset Protection Trusts (DATPs)
- Asset protection can also shield property in the event of a divorce or bankruptcy
Why People in Michigan Use Asset Protection Strategies
Unfortunately, many people are unaware of the steps they can take to shield their assets until they are served with papers or a dispute is already developing. At this point, asset protection measures may be too late, as trying to restructure property can be deemed fraud by the court. However, planning in advance can help limit exposure to legal action.
Common Scenarios Where Lawsuit Risk Is Increased
- Landlords and investors
- Individuals with high-value assets or public visibility
- Blended families and second marriages
- Families in which prior inheritance disputes arose
- Licensed professionals and clients
Understanding your risk is imperative, as some individuals in these professions may face an increased risk of liability, like doctors or real estate agents.
Risks to Heirs and Beneficiaries
It’s important to understand that asset protection not only helps shield you from legal action, but it can also help ensure that your intended heirs and beneficiaries receive the assets you wish to leave them. Without proper, advanced planning, assets intended for beneficiaries may:
- Be subject to division during a divorce
- Be seized during bankruptcy or debt collection
- Be used as restitution during a lawsuit or judgment
As such, taking the time to adequately plan and shield your assets can help preserve inherited wealth and prevent the mismanagement of assets.
Legal Tools That Can Help Protect Assets From Lawsuits
It’s important to understand that, while there are a variety of tools and strategies you may be able to utilize to reduce your exposure to creditors and lawsuits, these are not one-size-fits-all solutions. As such, working with an experienced Washtenaw County estate planning attorney can help you determine which option is best for your unique situation.
Irrevocable Trusts
Establishing an irrevocable trust is one of the most effective ways to shield your assets, as this can help separate legal ownership of an asset. Essentially, once you place an asset in this trust, it is no longer legally yours, but rather the property of the trust fund.
- A trustee (not you) will control the fund
- You cannot change or cancel an irrevocable trust
- Assets will no longer be viewed as your personal property
- Courts generally view the trust separately from the individual
Establishing an irrevocable trust is imperative if you wish to shield assets in the long term for beneficiaries
Business Entity Structuring
Certain business structures, like LLCs and family limited partnerships, offer some protection from lawsuits. A business can help you keep some assets separated, meaning that people who file lawsuits against your business or lawsuits against you personally would not be able to win assets from both.
Michigan Domestic Asset Protection Trusts (DAPTs)
Michigan is one of the few states that allows certain self-settled irrevocable, or DAPT, trusts. However, you must ensure you meet the general compliance requirements:
- The trust must be irrevocable
- Requirements for the trustee must be strictly followed
- Spendthrift and distribution limits must be adhered to
- The trust must be created prior to a legal claim or lawsuit
You must also understand that transfers made to avoid legal issues that you are aware of are generally not protected.
Insurance as a Lawsuit Protection Tool
A larger insurance policy can also help protect you from lawsuits. If your policy is large enough, your insurer can pay out if you are successfully sued. As such, you may wish to consider the following policies depending on your circumstances and profession:
- Umbrella liability coverage
- Professional liability or malpractice insurance
- Property liability insurance
- Business liability coverage
Though paying these premiums can be costly, in the long run, having an insurance company willing to pay defense costs can help protect the liquidation of your personal assets, ensuring they can be distributed to heirs as intended.
What Asset Protection Cannot Do
It’s important to understand that there are several important legal and ethical considerations you must keep in mind when asset protection planning. Generally, protection cannot:
- Illegally conceal assets
- Shield assets from current creditors
- Reverse existing obligations
- Protect transfers made in anticipation of a lawsuit
As such, the courts will typically review:
- The timing of transfers
- Control over assets
- Whether or not evasion was intentional
Do I Need a Lawyer For Asset Protection Planning?
Setting up an estate plan on your own and protecting your assets from lawsuits can be difficult work. Though there is a litany of “Do-It-Yourself” forms available online, these generally do not meet the strict requirements necessary for these to be valid. In fact, failure to carefully establish a plan can increase your risk of asset exposure, rather than reducing and protecting your property.
Working with an attorney can help:
- Evaluate your risk level
- Determine the best method for protecting your assets
- Ensure coordination between financial planners and tax professionals
- Meet compliance requirements for Michigan estate planning rules
Meet With Our Michigan Estate Planning Attorneys
When you are ready to establish an estate plan of your own, Collis, Griffor & Hendra can help. Our experienced estate planning lawyers can assist you in determining the best course of action to protect your assets from lawsuits or collection efforts. Contact our team today to learn how we can represent you.