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Tips to Save Valuable Assets from Creditors

In today’s uncertain economic conditions, building wealth seems like an uphill battle. People who have brought a house, car, or any worthwhile asset spent their life savings on it. Similarly, companies that purchase equipment, plans, and machinery acquire funding from external sources. What if we tell you that these hard-earned assets can get sued? We live in a litigious society where creditors sell assets to fund financial losses.

In some instances, failure to repay bank loans on time aggravates the authorities to take legal action. They either decide to file or lawsuit or sell off the company’s assets to cover their loss. On an individual level, car accidents, an injured tenant, or unpaid medical bills can result in a monetary judgment. The court might ask you to sell off the house or office and cover the unpaid bills. Therefore, if you don’t want to put your valuable assets at stake, adopt strategies to protect them.

If you want to learn about this, have a look below. Here we are highlighting five tips to help you save valuable assets from creditors.

1. Look for Annuities & Trusts

In the US, many states provide significant protection to annuity balances and cash in asset value. It means no matter what happens, the creditors cannot sell off the cash assets. However, you have to find possible asset protection for the tangible assets to eliminate the litigation risk. It will offer different asset protection schemes based on the connection between you and your assets. For example, if you own a land, the trust will take away the right to use or control the land.

The purpose behind this scheme is to avoid distributing assets to the creditors. In addition, entrepreneurs won’t be able to transfer ownership of the asset to a third person. The trustee will be managing your asset, removing the possibility of a creditor gaining access to your asset. Besides securing your property and cars, you can use asset trusts for medical and domestic asset protection.

2. Open a Limited Liability Company

When we talk about creating a business entity, there are two types of corporations. First, you can open an unlimited liability company, where you have to repay creditors by selling personal assets. Second, you can open a limited liability company (LLC) which is a separate legal identity. In simple words, it will protect you from personal liability lawsuits in case someone decides to sue your company. Hence, if the business can’t pay creditors, you won’t have to sell your assets.

As an LLC owner, you won’t risk losing more money than you invested. You have to treat LLC as a separate business and avoid paying personal bills from the business account. Likewise, you have to fulfill tax obligations separately so that authorities know the company is a different entity. However, you have to use your limited liability correctly instead of thinking you will get away with everything.

3. Practice Equity Stripping

Sometimes, owners have no option but to reduce the property’s overall value in the property to keep it safe from creditors. This process of equity stripping is widely popular as finance experts believe it is one of the best asset protection methods. By giving any party a claim against a property, the owner can control their use of assets and cash flows. At the same time, such practices make the asset less attractive for creditors.

However, creditors might enforce some legal judgment in such situations. For that, you can opt for a home equity line of credit HELOC. It gives the lender a lien against property value, which means the property serves as collateral for the loan. It will make it challenging for the creditor to get actual equity in the property, keeping them away from legal proceedings. In addition, HELOC provides a source of funds that you can utilize to pay off the creditors. It would neither add to your financial risk nor cost a fortune.

4. Maximize Contributions to Retirement Funds

The federal law of the United States of America provided complete asset protection to retirement plans. Individuals can save up to $1 million in assets in their IRA account. It also offers exemption from bankruptcy, meaning the creditors won’t acquire your assets belonging to the retirement funds. Therefore, move in all your cash that you won’t need until 60 years of age to this account. It is an ideal way to save for the long-term while keep the assets protected.

Besides this, you will have an annual contribution limit which depends on the retirement plan. Thus, choose wisely to maximize asset protection. Remember that these laws vary from state to state. Hence, you have to see how much protection your state is providing and fund the account accordingly. You can even speak with an attorney regarding this and determine if creditors opt between state and federal exemptions.

5. Maintain Your Corporate Veil

Usually, people who don’t want to sell their shares opt for corporations instead of LLC. The key benefits of operating as a corporation are a tax, marketing, and asset benefits. For instance, if any employee does something that leads to a lawsuit against the company, you can sort everything within the organization. It will prevent the third party from taking your personal or business assets in the case.

Moreover, transferring ownership of a corporation is relatively more straightforward. It means you can keep the business in your spouse or child’s name and act as the company’s shareholder. However, the creditors can still sue you personally for the actions you perform through the organization. Perhaps, if you create a campaign against the competitor, you will land yourself into hot water, putting assets at stake. Therefore, owners have to be wise enough not to indulge in malicious and shady activities since that could cost them millions.

Final Thoughts

Undoubtedly, life will throw you into situations where your entire life savings would be at stake. Instead of taking such risks, think about asset protection from the very next minute you purchase an asset. You have to create a business entity that doesn’t come with personal liability. Similarly, look for reputable asset trust organizations and maintain your corporate veil to secure the assets. Adopting a few strategies can save you from litigation and lawsuits by creditors.

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