Asset Protection for You & Your Family

All families should implement an overarching plan to protect their assets. Unfortunately, most families fail to first consult an experienced attorney for good legal advice regarding how their estate plan and legal documents interconnects with their insurance and financial needs. As a result, most families end up with a hodge-podge of assets with various title holdings that sometimes conflict and often fail to work as anticipated.

First, basic asset protection requires the right kind of legal documents. Some attorneys act as scriveners who simply draft boilerplate legal documents in an attempt to fit every family into the same box. This type of estate planning is not helpful, as every person is unique and each family has different needs and dreams. Certain members of your family may manage their money well, while others may be spendthrifts. Some have a need for absolute control; others don’t. Some require agents to step forward because of frailty or cognitive impairment. Some need to insure the safety of others after they pass. Most can afford with time and money to establish and maintain a family plan; others can’t or procrastinate about it until it’s too late. For these reasons and many more, you need an experienced planning attorney who will advise you regarding all the various options and strategies for your unique situation.

Once you have the right legal documents in place for your unique estate plan, it’s important to add the right insurance plan. This can include liability, life, health, or long-term care insurance. In order to maximize your asset protection, you should include an umbrella policy with your liability insurance coverage. You should also integrate life insurance into your plan in order to protect your family. Obviously, some of these things require you to do it early in your life and doing it the right way is less expensive and gives you more future options. It is critical that the title to your property be held in ways that will make your planning work. Unfortunately, most people don’t.

After creating and implementing your overarching plan, it’s important to consider younger family members. Many families focus on the importance of ensuring that their children have the means to attend college. However, parents and grandparents today should be more concerned about their children’s ability to pay for retirement. Of course, college is still important; one of the hardest things for children today is leaving college with a tremendous amount of debt. The bigger challenge, however, is having enough money to retire at a reasonable age and not run out of money. This is because many in younger generations are not saving, or not saving enough for retirement. With the exception of paying for medical needs, Social Security will not be a sufficient means of support for their retirement years. This is even more concerning when you consider recent reports of increased longevity. Younger generations are expected to live 5-10 years longer than their parents, and children born today could live to age 121. These statistics are frightening if these generations fail to save for a long retirement.

It’s especially important for parents and grandparents to encourage younger family members to start saving for retirement sooner rather than later. Holly Nicholson recently wrote an article in The News and Observer about the importance of the time value of money. Most people have a goal of saving roughly $1 million for their retirement by the time they reach age 65. To make her point, she uses the rate of return in her hypothetical retirement accounts of 10% per annum. A 22-year-old who invests $5,000 a year for six years (reaching $30,000 and investing no further) will save $1.3 million by age 65. In contrast, if that same person waits until they’re age 30, he or she would have to invest $4,840 each year for 35 years for a total of $169,406 to achieve the same goal of $1.3 million. This assumes that the rate of return will always be ten percent which is an unreasonable assumption for most, but it makes her point about the time value of money. This example demonstrates that money saved early is far more powerful than money saved later in life.

A great way to help younger generations save for retirement is to purchase a life insurance policy for young children who are at least six months old, a policy that is designed unlike most—a policy designed for cash buildup rather than death benefit. If the life insurance policy is structured properly, you will pay little for the life insurance. The policy will grow over time as a tax sheltered investment, and creditors will not be able to access the policy. As an adult, he or she can take a tax-free loan against the policy for his or her retirement, or it will be paid out later as a death benefit to his or her beneficiaries.

The only thing that’s better than a life insurance policy for young people is a Roth IRA when the child starts working and has earned income that can be contributed to the Roth Account. While parents or grandparents cannot contribute directly to the Roth for the child, you can encourage the child’s contribution with the promise to gift an equivalent amount of cash to the child each month. Then, any money in the retirement account will accumulate and can be disbursed tax-free. Unfortunately, young people are unable to contribute $5,000 a year to a Roth—they are trying to save their money to buy a vehicle or a house or to get married or to save for a child’s needs, and the list goes on—so they are unable to contribute to a Roth without your help. Once invested in a Roth, or any retirement account, it’s important to manage the account the same way you manage other investments , as your tax deferral will not help if your retirement accounts gains little or loses money.

Lastly, some families use certain trusts that take advantage of the favorable asset protection laws in other states. For example, you may have highly appreciated property that would be taxed at high capital gains rates if you sold it and therefore hold on to stocks or real estate longer than you should, just to avoid the taxes. In such cases, it may be possible to create an Alaskan trust, where you can opt-in to Alaska for community property purposes. As a result, you will get a full step up in income tax basis on the first death and again on the second death. You could get a full step up in basis and sell the property without paying income tax. This results in more favorable tax treatment than North Carolina’s laws, as we are a separate property state. Here, if you own property, you will get a one half step up in income tax basis upon death, resulting in significant capital gains taxes unless a family waits until the death of the surviving spouse to sell that property.

Similarly, you can create a domestic asset protection trust through the favorable asset protection laws of Nevada. In much the same manner as the Alaskan trust, families can place their wealth out of the reach of creditors by putting their property directly into this trust or alternatively into an LLC and the LLC into the trust. You do not have to be wealthy to benefit from these techniques, as many of the same asset protection techniques are used to protect a family’s nest-egg when Medicaid and other government assistance is required for long term care needs.

There are so many variables, and it can be complex without good assistance; it’s important to visit an experienced Estate Planning attorney to put your asset protection plan in place.

If you or your loved have questions about asset protection, or would like to know more about government assistance programs such as Medicaid, Veteran’s Benefits, or other Special Needs programs, consider W.G. Alexander & Associates – we are experienced attorneys who offer a unique blend of asset protection, Elder Law and estate planning. You can also attend our free seminars, learn more through our website at, or call us at (919) 256-7000.

Attorney Bill Alexander discusses these issues and more every Tuesday morning on W.G. Alexander & Associates’ radio program, “Asset Protection Today,” on TalkRadio 850 WPTK (AM). Be sure to listen tomorrow  from 9:00-10:00 AM.  To listen to last week’s show, please visit WPTF’s on demand show blog by clicking here.