Just like firefighters would never leave the fire station without protective gear, nobody should start any business without special protection. Asset protection uses laws to protect assets you worked hard to accumulate from the claims of known and unknown creditors.
The creation and layering of the trusts and business entities help keep creditors from pursuing or, in certain instances, bringing claims by making it difficult for them to get the assets. Creditors, instead of spending big money on legal fees in hopes of breaking through the protective layers, may opt to settle for substantially less than their claims are worth.
As mentioned above, asset protection may involve the use of trusts and/or business entities. Also, asset protection involves the use of state Law protections for certain assets. For instance, the State of Nevada prevents a creditor from being able to satisfy his or her claim from, among other things, a certain amount of a debtor’s retirement funds and/or benefits, certain amount of a debtor’s personal property, and the first $550,000 of the equity in the debtor’s primary home.
Before undertaking any asset protection planning, a person must, among other things, determine how susceptible he or she is to the claims of creditors, must consider the cost of the asset protection plan, and must consider the inherent risks of the assets he or she wants to protect.