Using Estate Planning to protect assets

Using Estate Planning to protect assets

There are multiple facets to estate planning, and asset protection plays a large role in this important process. Regardless of your age, seeking the counsel of experienced probate and estate lawyers who will advise you on how to use estate planning to protect your assets can give you peace of mind and help ensure that your family’s financial future is protected.

Estate Planning and Asset Protection

Each person’s circumstances are different, but one of the most important estate planning goals for many people is to ensure that their assets are passed on to their beneficiaries, not their creditors. This is just one reason why creating a will is not enough—there are many other essential estate planning documents that serve an important purpose in preserving and protecting everything you’ve worked hard for.


A trust is very common estate planning tool that is used to protect assets. A trust is a legal document in which one person or qualified entity, the trustee, holds property for the benefit of another, the beneficiary. The property in the trust can be any kind of real or personal property, including money, real estate, stocks, and other personal possessions. There are different types of trusts, so it is vital to make sure you seek estate planning services from a seasoned attorney who will advise you on everything you need to know about trusts.

One type of trust that protects your assets from creditors (and some estate taxes) is an irrevocable trust. When an irrevocable trust is created, the grantor no longer owns the assets that were used to fund it, and cannot modify, control or terminate the trust. Irrevocable trusts are often used for life insurance planning and setting aside education funds for children. Assets left in a fully discretionary trust with a third-party trustee can provide maximum assets protection for beneficiaries.

Because the grantor no longer owns the assets held in an irrevocable trust, a future creditor cannot go after them. However, it’s important to note that a transfer to a trust can be undone if a court finds that the trust was created with the intention of deceiving creditors. That’s why planning ahead and creating trusts to shield your assets before you are subject to any liability is vital.

With a revocable trust, grantor maintains ownership of the assets, and can change or revoke the trust at any time. As such, a revocable trust does not protect assets—creditors can force the owner of a revocable living trust or its estate to terminate the trust and surrender the assets.  The extent of protection a trust provides can vary widely from state to state. If you live in Pennsylvania, seeking estate planning services in West Chester, PA will ensure that you are working with attorneys who are well-versed in the complexities of state law.

Although a will is also a vital estate planning document, there are significant differences between a will and a trust. Unlike a will, a trust is a private document. A will must be filed in the probate court before it is determined to be valid. Most types of trusts allow the assets in the trust to avoid probate. Probate is typically a public process. If you are concerned about privacy, this is just one of a number of important things to consider when preparing a will.

While a will doesn’t protect your assets from creditors or probate, dying without a will can make circumstances very difficult and complicated for your family. Seeking the services of lawyers who deal with wills to help you draft this vital document will ensure that your assets are distributed according to your wishes and help your loved ones avoid conflict and save time and money.

Gifting Assets

Gifting assets to family members, friends or charity can keep them safe from creditors as well, but it’s important to keep in mind that these types of transfers are irrevocable and you cannot force a return of these assets, which can be problematic if the issue of divorce arises.


Carrying an adequate amount of homeowners, auto and life insurance is essential to protect your assets and your family. Make sure to include plenty of liability coverage and raise your insurance deductible or eliminate dual coverage to save on premiums. An umbrella policy is an economical way to insure against many different types of risks, and provides coverage for claims that may be excluded by other liability policies. It’s important to shop around for all types of insurance—costs can vary significantly from one company to another.

Tenancy by the Entirety

The manner in which your assets are titled can also protect them from creditors. Pennsylvania law usually treats those assets owned jointly with a spouse as “tenants by the entireties” property, which refers to a way of titling joint property only available to married couples.  In most instances, Pennsylvania law protects this type of property from the creditors of either individual spouse. For example, if your spouse injures someone and a judgment is entered against him or her in excess of any liability insurance that there might be, any assets that the two of you own as tenants by the entireties cannot be seized to satisfy that judgment.

529 & Retirement Plans

A 529 plan is a savings plan that’s designed to encourage saving for future education costs. Assets deposited into a 529 plan for children, grandchildren, stepchildren, step-grandchildren, nieces and nephews provide certain tax advantages and may be protected from creditors, and can be an effective way to shield large sums of money. There are fees and expenses associated with 529 plans, but the tax benefits often outweigh these costs.

Depending on the circumstances, assets contributed to retirement plans such as a 401(k) or IRA may also be sheltered from creditors.

Planning for Incapacity

Not only is it vital to have a lawyer write up your will, there are other important estate planning and asset protection documents that should be in place in the event of your incapacitation or death. Properly drafted power of attorney is essential to ensure that both your health and assets are protected in the event of your incapacitation. Power of attorney for health care lets you designate someone to make decisions about your medical care and end-of-life options if you become incapacitated and are unable to convey your wishes.  If you are incapacitated, a power of attorney for finances will allow your agent to take care of financial affairs such as paying bills and selling property without any need for court involvement. Again, setting up useful estate planning tools like trusts ahead of time can protect some of your assets from being wiped out by long-term care expenses in the future.

A durable power of attorney for finances is especially important when it comes to succession planning for your business. Failing to have a proper exit plan for your busines can put your assets in jeopardy, which can lead to financial problems in retirement and affect the distribution of your assets when you’re gone.

Entity Formation

Family Limited Partnerships (FLPs) can be a valuable asset protection tool. When you form an FLP, you transfer ownership of a particular asset or assets to the FLP in return for an ownership interest in the FLP itself.  Many states give these entities “charging order” protection, whereby creditors can only reach a distribution made from the entity to an individual owner. If structured properly, these entities can have numerous other advantages beyond asset protection, such as providing discounts for gift and estate tax valuation purposes, providing a vehicle for the consolidation and effective management and control of family assets and keeping family assets within the family. Also, perhaps most importantly, a liability arising with respect to the assets held by the entity should be limited to the entity’s assets, thus insulating other assets of the owner of the entity from any such liability.

At Carosella & Associates, our experienced estate planning and business attorneys can help you create an effective asset protection plan that will ensure your assets are preserved today and in the future.