For most people, at least part of the purpose of creating an estate plan is to ensure that their estate assets are available to provide for loved ones after they are gone. Of course, in order for your estate assets to provide for loved ones in your absence, you need to protect those assets while you are still here. With that in mind, you may choose to include asset protection strategies in your comprehensive estate plan. Because no two estates include the same assets or the same potential threats to those assets, you should work closely with a North Dakota estate planning attorney to decide which asset protection strategies will work best in your plan. It may be helpful, however, to learn more about three commonly used asset protection strategies and how they might fit into your estate plan.
Are Your Assets at Risk?
Before you can decide which asset protection strategies to incorporate into your estate plan, you need to evaluate whether or not your assets are at risk and, if so, how they are at risk. In fact, one of the biggest mistakes people make when estate planning is failing to recognize possible threats to their estate assets. Some common ways in which your estate assets might be at risk include:
- Divorce – your own divorce will certainly put your assets at risk; however, so might the divorce of an heir. Imagine, for example, that you gift your entire estate to your only child. Not long after your death, that child goes through a contentious divorce. If your child’s inheritance was not properly protected, his/her spouse could wind up with half of it in the divorce.
- Bankruptcy – an economic downturn and/or the need to file for bankruptcy protection can always put your assets at risk.
- Business failure – many small business owners think they have structured their business so as to avoid personal liability, only to find out too late that they are, in fact, personally liable if the business fails.
- Beneficiaries – your beneficiaries could put your hard-earned assets at risk by squandering them on drugs, gambling or another addiction or simply by being a spendthrift.
- Long-term care – if you need long-term care later in life, and you turn to Medicaid for help covering the costs of that care, your assets could be at risk if you failed to include Medicaid planning in your estate plan well ahead of time.
Protecting Your Assets – Asset Protection Strategies
There are a number of tools and strategies that can be used within your estate plan to protect your assets. The tools/strategies you use will depend on your individual needs; however, three common asset protection strategies include:
- Medicaid trust – this is an irrevocable trust into which you transfer assets that would be considered non-exempt for purposes of determining your eligibility for Medicaid. As non-exempt assets, they are subject to the “spend-down” requirements, meaning you could lose them if you need to qualify for Medicaid. By transferring the assets into a Medicaid trust they remain protected; however, you may still benefit from the interest earned on the trust assets.
- Dynasty trust – unlike most trusts that are focused on distributing assets, the goal of a dynasty trust is to keep the assets in the trust for generation after generation. In other words, a dynasty trust is used to protect the family fortune from all types of potential threats. A dynasty trust can protect and grow the family fortune for many years, keeping your family wealth out of the reach of both creditors and spendthrift beneficiaries.
- Irrevocable Life Insurance Trust (ILIT) – as the name implies, an Irrevocable Life Insurance Trust, or ILIT, is a trust that is used to protect the proceeds of a life insurance policy. By funneling the proceeds directly into a trust, you retain a certain degree of control over what happens to those proceeds after you are gone.
For more information, please join us for one of our upcoming FREE seminars. If you have additional questions about North Dakota asset protection strategies, contact the experienced estate planning attorneys at German Law Group by calling 701-738-0060 to schedule an appointment.