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Put simply; asset protection is a concept of guarding the wealth. Inculcating strategies, this concept is a part of financial planning that people use to safeguard their assets from creditors' claims.
Business entities and individuals use this technique to restrict creditors' access to specific valuable assets while functioning within the debtor-creditor law bounds. The objective is to shield assets without tax evasion or perjury.
The planning of asset protection started developing in the late 1970s as the stand-alone area of the law. However, it was only during the late 1980s when it came into the prominence with the beginning and marketing of Offshore asset protection trusts. The credit for the introduction of this concept goes to Colorado attorney Barry Engel.
As mentioned above, this technique helps to safeguard assets legally, without the involvement of illegal practices of contempt, concealment tax evasion, fraud transfers or Bankruptcy frauds. As per the experts, it is said that Real Asset protection starts before the occurrence of a liability or a claim.
This is because usually, it becomes too late to initiate any beneficial protection afterwards. Some of the common methods for asset protection are:
In case the debtor has only a few assets, bankruptcy might be a more favourable option than establishing an asset protection plan. On the other hand, if substantial assets are involved, proactive asset protection is advised.
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Properties that are jointly-held that come under the tenants’ coverage can work as a type of asset protection. Also, married couples who have a mutual interest in a property share a complete claim on the entire property and not the divisions of it.
The joint ownership of a property simply means that creditors who have claims against one partner cannot consider the property to reclaim their debt. However, in case the creditor has claims against both the partners, the asset protection technique would not be able to save the asset.
Some of the asset protection attempts include putting the financial resource or the property in the name of a trusted associate or a family member. For instance, a child of the couple can be gifted the property’s ownership while the real owners can continue to use or live in the property.