Estate planning and asset protection both involve advanced planning and protecting assets. However, they have crucial differences. Estate planning entails preparing assets and personal affairs for when a person dies or becomes incapacitated. In contrast, asset protection concerns safeguarding assets during the person's life. An experienced Virginia estate planning attorney can help people understand the differences between estate planning and asset protection, identify the best strategies for their unique needs, and help to set up these plans. Consider contacting the Law Office of Aubrey Carew Sizer PLLC at (571) 403-2619 to learn more about plans and protection for your assets.
What Is Estate Planning?
Estate planning involves preparing for death. An effective estate plan distributes assets upon a person's death per that person's wishes. Additionally, an estate plan also may provide protection in life. A successful estate plan can support a person if he or she becomes incapacitated and can no longer manage financial and health decisions. The estate plan will allow a designated person to make financial and healthcare choices for a person per that person's wishes.
Last Will and Testament
One of the most well-known components of an estate plan is the Last Will and Testament (will). A will provides instructions for managing the estate of the testator—the person who made the will. In a will, the testator appoints an executor and tasks the executor with carrying out the testator's wishes. The will states who will receive the testator's assets upon his or her death. The testator may make specific bequests, which are gifts to individuals, in his or her will. For instance, a testator could leave a valuable watch to a nephew as a specific bequest. The testator may also leave the residual estate to an individual or multiple individuals, which includes all remaining assets. The Code of Virginia provides that a will must be written and signed and have two witnesses to be valid.
In Virginia, estates with assets greater than $50,000 must go through probate to establish the validity of a will. Probate can be a time-consuming, expensive, and emotionally charged process. While it is in probate, an individual may challenge the will, further complicating the process. The following strategies may help loved ones avoid the probate process:
- Revocable Trust
- Transfer-on-Death Deed
- Power of Attorney
One strategy to avoid probate is to create a revocable living trust. In a trust, one person, the trustee, holds assets for the benefit of another person, the beneficiary. A person called the settlor may use the trust to transfer assets to a beneficiary. For a continuous transfer of assets to the beneficiary, the settlor first creates a trust document that designates the settlor as the trustee. Then he or she may assign a successor trustee to take over transferring the assets to the beneficiary upon the settlor's death.
Another estate planning strategy that bypasses probate is to create a transfer-on-death (TOD) deed. This deed allows an individual to designate one or multiple people to receive the individual's home when he or she dies. A TOD deed permits a person to easily pass his or her property on at death while maintaining ownership of the property during life.
Power of Attorney
Another key estate planning strategy uses the power of attorney. A power of attorney (POA) names another person as an agent who may act on a person's behalf. In the power of attorney, a person may make specific instructions, grant powers, and restrict powers. There are two primary types of POA:
- Financial Power of Attorney—A financial POA pertains to managing financial affairs. The document may give an agent the ability to file taxes, deposit checks, and more.
- Healthcare Power of Attorney—A healthcare POA applies to healthcare decisions. If a person is in the hospital, for example, and unable to make healthcare decisions on his or her own behalf, the named healthcare agent has the responsibility of carrying out the person's wishes. Additionally, as part of an estate plan, a person may create a living will, a document that expresses the person's wishes for end-of-life medical care.
What Is Asset Protection?
Asset protection involves protecting assets in life. Asset protection may safeguard a person's assets from creditors, lawsuits, taxes, distribution at divorce, and nursing homes. Asset protection may also protect a personal business if the business owner becomes sick and is no longer able to manage it. Estate planning attorneys who do effective asset planning, such as the Law Office of Aubrey Carew Sizer PLLC, are knowledgeable about tax law, business law, bankruptcy law, and debtor and creditor law and are ready to help protect your assets.
The following methods are commonly used for asset protection:
- Irrevocable trust
- Self-settled spendthrift trust
- Transfer of property
In an irrevocable trust, a settlor designates a trustee to control assets in the interest of a beneficiary. Irrevocable trusts afford beneficiaries little control over their assets. Thus, irrevocable trusts may protect assets from creditors because creditors may have difficulty accessing the assets that a person does not control.
Self-Settled Spendthrift Trust
A major asset protection strategy is creating a self-settled spendthrift trust, which is allowed according to Virginia law. Self-settled spendthrift trusts may reduce state income taxes and protect assets from creditors. In this type of trust, a person may be both the trustee and the beneficiary.
Transfer of Property
Another method for asset protection is transferring property to a limited liability company (LLC). This move can protect property from creditors and judgments and may reduce taxes. Additionally, married couples may wish to transfer business assets to family liability partnerships, which allow people to relinquish ownership of assets while maintaining control.
Purchasing insurance policies constitutes another method of asset protection. Some types of insurance that may protect a person's assets include car insurance, professional liability insurance, home insurance, and rental insurance. If a person is facing a judgment, for example, the appropriate insurance policy may cover the cost, safeguarding his or her assets.
Contact an Estate Planning and Asset Protection Attorney Today
Although estate planning and asset protection have some overlap, they serve different goals. Knowing the options that are available for protecting your assets now and later can help you ensure that your loved ones will be able to keep what you have worked to obtain. For assistance with both estate planning and asset protection in Virginia, consider contacting a knowledgeable estate planning attorney at the Law Office of Aubrey Carew Sizer PLLC by calling (571) 403-2619 today.