ESSENTIALS OF ESTATE PLANNING: INCAPACITY AND BASIC ASSET PROTECTION

By Cory Howes

cory-(1)A few months ago, we started our Essentials of Estate Planning series on the Forrest Firm blog. In that initial article, we outlined multiple planning areas that apply to most everyone, as well as some very important aspects of estate planning that apply to people with more complex situations.

In this installment, we’ll take a look at the first two areas on the “essentials” list: Incapacity Planning and Basic Asset Protection.

Incapacity Planning

Incapacity planning involves planning for how your property is managed if you are unable to oversee your financial affairs and planning for your medical care in the event you are unable to make your own decisions regarding medical treatment. Without proper planning in place, court intervention, via guardianship, is a virtual certainty. This process can be time consuming, expensive, and stressful for your family. Even if the court appoints a family member to oversee your finances, that family member may be required to post bond and account to the court about how they are managing your affairs and show exactly how they are spending and investing your property.

In addition, family disputes may arise regarding your healthcare decisions, and your wishes regarding your medical treatment may not be followed. With proper planning, you can select trusted individuals to manage your financial affairs and make medical decisions for you. You can also specify the situations in which you would not want to receive life prolonging medical care. Furthermore, you can leave instructions for those managing your finances and medical care so the individuals you selected know exactly what you would choose for yourself if you were able to do so. In short, advanced planning allows you, and not the courts, to control your finances and healthcare in the event of your incapacity.

Basic Asset Protection

As mentioned in our initial article, our approach to estate planning includes taking appropriate steps to ensure you maintain control of your property during your lifetime. One of the most important ways to protect and maintain control of your property is to utilize some basic asset protection tools.  We view asset protection as a ladder, with the lower rungs appropriate for most everyone, with more advanced tools available for more complex situations.

The first ”rung” of asset protection entails those protections available to you under the law, such as federal ERISA protections for 401(k) or retirement plans and bankruptcy protections. In addition, you have rights granted by the state, such as homestead exemptions and protection for individual retirement accounts (IRAs), life insurance, and other financial assets. If you are being sued or need to file bankruptcy, it’s essential to understand how your assets are protected under federal and state law. You will also want to understand whether you can protect assets by utilizing another state’s law. For example, while North Carolina generally has a homestead exemption of $35,000, Florida’s exemption is $1,000,000.

The second rung of the asset protection ladder is leveraging insurance to the fullest extent. This includes your homeowners, auto, and umbrella coverage, as well as business insurance, and landlord insurance (for those with rental properties). All of the asset areas covered by these types of insurance are subject to liability—you’ll want to be insured for the value of your home, automobiles, rental properties, or business as applicable. It is also important to understand that not all insurance policies are the same, and you should understand the coverages available and select the level that makes the most sense for you and your family.

The third rung of the asset protection ladder is utilizing limited liability corporations, more commonly known as LLCs, to create “walls” around and between different assets. People with rental properties, for example, should strongly consider placing those rentals in LLCs. Doctors who own their own practices may want consider a three-tiered structure, with one LLC owning the office/building, another owning medical equipment and devices, and a third as the operating business. For those with more complex needs, there are also other tools and strategies available, but we’ll save those for another time.

Stay tuned for our next installment of our Essentials of Estate Planning series, where we’ll take a look at planning in the areas of Wealth Transfer and Beneficiary Protection Planning.