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Protection From Predators and Creditors

Posted by Christin D. Hoyt | Feb 02, 2011 | 0 Comments

At Dismuke, Waters & Sweet, we view estate planning as much more than just trying to avoid taxes. Yet with all the chaos in the last couple of years on the tax side of estate planning, many vital, non-tax aspects of planning tend to get overlooked or even ignored. For instance, how does one minimize exposure in accidental occurrences such as automobile accidents? Or, how do we keep our assets beyond the reach of judgment creditors, ex-spouses, or the unscrupulous among us? Any well-crafted estate plan should employ strategies that address these important non-tax issues. The specific strategies we employ depend largely on the particular client and the nature of his or her assets. A few of these strategies may include the following:
Family Limited Partnerships/Limited Liability Companies:
Many states, including Texas, have adopted laws that severely limit a creditor's right to seize assets properly owned within a family limited partnership or limited liability company. Assets such as after-tax investment accounts and investment real estate are often appropriate for these types of entities.
Inherited IRAs:
While individual retirement accounts are generally protected from the claims of the IRA owner's creditors, recent court cases have ruled that an IRA inherited by the owner's beneficiaries is not protected from the beneficiaries' creditors. For this reason, it may be wise to designate a “conduit” trust as a beneficiary of the IRA.
Asset Protection Trusts:
In certain instances, one may transfer assets to a trust for his or her own benefit and have those assets protected from that person's creditors.
Life Insurance/Annuities:
Under Texas law, cash or other investments held within a life insurance policy or an annuity is protected from the claims of the owner's creditors.
Liability Insurance Policies:
A brief review of general liability protections in homeowners, automobile, malpractice and other policies can be very helpful in crafting an overall protection plan, but they all have limitations and exclusions.
Umbrella Liability Policies:
A few dollars in premiums for an excess liability umbrella policy might go a long way in minimizing exposure of personal assets.
Prenuptial, Non-Marital, or Separate Property Agreements:
Advanced planning for situations with spouses and significant others can be critical.

In whatever strategy is employed for protecting assets from predatory creditors, it is critical that it be carefully coordinated with other aspects of planning. Please contact us if we can be of assistance.

About the Author

Christin D. Hoyt

Our Attorneys


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