Wealth Protection Strategies

Most clients have some portion of their assets in retirement plans, brokerage accounts, businesses, or bank deposits. The term “wealth protection” encompasses risk management, but what we will consider in planning under this topic are ownership issues, entity selection, trusts, pension protection, ERISA protection, and securities protection. Strategies are needed to avoid problems in this area of planning.

ERISA

The Employee Retirement Income Security Act of 1974 (ERISA) protects qualified plan assets. IRAs, ROTH IRAs, tax-deferred annuities, one-participant plans, and the like are protected only up to $1,000,000. Massachusetts also conforms to the $1,000,000 limit. This is an area for planning.

Securities Investor Protection Corporation (SPIC)

The amount of coverage by the broker needs to be considered in determining the amount of assets to be held in each individual account. The type of investments needs to be considered. For example, gold, silver, and commodities are not protected.

Business Entity Selection

The proper type of legal entity to own the business is a very important planning area because of the risks. Can insurance cover the risks? How many employees will there be? Are there hazardous materials, environmental issues, product liability issues? Will substantial debts be incurred and what owner guarantees are given? The choice of the business entity is critical in protecting hard-earned savings.

Family Limited Partnerships

The typical way creditors reach general partners is with a charging order, entitling the creditor to a piece of the distributions. But withholding distributions to beat the creditor may not be enough. This is a critical planning area.

Domestic Trusts

Generally, creditors can only go after property which is legally owned by a client, not property legally owned by the independent trustee serving the client. Spendthrift provisions help protect assets. However, protection may be compromised through control(s), powers of appointment, and absolute rights to distributions retained by grantor clients.  Trust documents can be reviewed by the planner, with an attorney of choice, to look for self-defeating provisions.

Ultimately, in many situations, the client must decide whether the risk is so great, after all that insurance can do, as to require giving up ownership and/or control over a portion of the assets. For many clients, giving up assets is not an option.