What is Estate ProtectionTM?
By: Allen E.F. Rozansky, JD/MBA
As a part of our daily lives, we often are concerned with who will take care of our family members and our assets and possessions if something were to happen to us. We think about what will happen if we die, as well as if something were to happen to us while we are still alive but are unable to make financial or medical decisions for ourselves. We also think about how our assets and possessions will be protected from our creditors and the creditors of our family members, as well as in the event of a divorce. And we think about how we can reduce our exposure to local, state, and federal taxation so that we can make the maximum use of our assets and pass as much as possible on to our families, friends, and charities.
All of these concerns are encompassed in an area of law we refer to as Estate ProtectionTM. Estate Protection is the coordination of three aspects: one’s estate, income and capital gains, and asset protection planning.
Estate planning is the drafting of documents necessary to indicate what will happen to your assets, including to whom your assets will pass and in what form (e.g.; outright or in trust), and who will take care of your family members, when you pass away. These documents, possibly a will or a combination of a will and one or more trusts, may also make it so your family does not have to commence a probate proceeding in the courts if you reside in a state in which probate is expensive or difficult.
A well-drafted estate plan will also include documents necessary if something happens to you, prior to your death, resulting in you being unable to make financial or medical decisions for yourself. These documents, such as powers of attorney, advanced directives, and a living will indicate who will assist you in making decisions and any special instructions you have for those persons. Having these documents in place usually needs to go to a court to be appointed as your guardian or conservator before your family can make decisions for you.
Income and capital gains tax planning is the process of setting up your affairs with the goal of reducing your exposure to local, state, and federal income and capital gains taxes. This may include anything from owning your business or investments in a certain way to properly naming the beneficiaries of your IRAs or other qualified retirement accounts. It may also include providing that your assets will pass to your beneficiaries during your life or upon your death in a way that they will have less or no exposure to the capital gains tax when those assets are subsequently sold.
Finally, asset protection addresses the concern of creditors being able to access your personal or business assets. The types of creditors from whom protection may be important include business creditors, business co-owners, strangers, and even family members and future ex-family members in the event of a divorce. Protection from creditors should be looked at for both during your lifetime and after you pass away and leave your assets to your family. The tools available for asset protection are many and can be anything from simply properly naming the owner of your assets, to naming the correct beneficiaries of your retirement accounts, to possibly setting up entities or trusts to own certain assets, either in the US or in an offshore jurisdiction, such as the Cook Islands or the Isle of Man (for asset protection purposes, not for income tax or estate tax avoidance purposes).
When working with an attorney, it is important that all three aspects of Estate ProtectionTM are addressed. Concentrating on only one aspect will create a plan that may not properly protect you, your family, and your assets, take advantage of all available reductions in your income, capital gains, or estate taxes, or protect your assets from future creditors who may try to access your assets during your lifetime or after you pass away.
(Mallon Lonnquist Morris & Watrous, LLC is a strategic business law firm located in Denver, Colorado, with practice focused in all major aspects of business, real estate, financial transactions, estate planning, tax, and related litigation. Allen E.F. Rozansky, JD/MBA is Senior Estate & Tax Counsel to the firm. Allen regularly represents clients in Estate ProtectionTM matters, including estate, income and capital gains, and asset protection planning, as well as business entity formations and operations, probate and estate administration, and probate and trust litigation. Allen can be reached by e-mail at email@example.com or by phone at (303) 722-8305.