Utilizing Estate Planning, Trusts, and Corporate Entities to Mitigate Risk

Protecting your assets is not just a matter of securing wealth for the next generation but also ensuring that your hard-earned assets are shielded from legal risks, liabilities, and other unforeseen events. In a world where lawsuits, creditors, and volatile economic shifts can threaten your wealth, proactive asset protection is essential. Whether you’re a business owner, investor, professional, or simply someone looking to secure your family’s future, protecting your assets isn’t just wise, it’s necessary. While there is no one-size-fits-all solution to protect your assets, Bacon Wilson is here to help you formulate a plan utilizing a combination of strategies, including estate planning and business solutions, that can offer substantial protection of what you and your family have worked so hard to build.

Understanding Asset Protection

Before exploring the specific tools available, it is important to understand what asset protection is and why it is so important. Asset protection involves using strategies and structures established through various legal instruments to reduce or mitigate the risk of losing valuable assets due to lawsuits, debts, or other liabilities.

Some Common Risks Include:

Creditors: In the case of default on loans or other debts, creditors may seize personal or business assets to recover what is owed. Even loans secured by a specific asset, such as real property subject to a mortgage, may put your other assets at risk if the sale of the secured asset is insufficient to satisfy the debt.

Lawsuits: Individuals and businesses can be the targets of lawsuits and other claims. Regardless of whether the Plaintiff’s claims are valid or frivolous, an adverse judgment may expose assets to liens or seizure.

Divorce: In the case of divorce, the resolution of the petition will often require, sometimes by court order, the equitable division of marital assets. This can include assets acquired by one party before the start of the relationship.

Governmental Risk: Long-term care, especially nursing home care, can cost at a substantial cost. Many people assume Medicare will cover these expenses, but Medicare does not pay for long-term custodial care. That’s where Medicaid (MassHealth) comes in. However, qualifying for coverage comes with strict income and asset limits. In Massachusetts, a single applicant is allowed to keep only $2,000 in countable assets and those assets are subject to a 5-year look back period.

Estate Planning and Trusts: Building a Legal Wall Around Your Wealth

Trusts are among the most powerful tools in estate and asset protection planning. A trust is a legal arrangement where a trustee holds and manages assets on behalf of a beneficiary. There are many types of trusts, each with their own benefits and limitations.

Revocable Living Trusts

Primary Use: Estate planning and probate avoidance.

Limitations: Offers limited asset protection during your lifetime because you maintain control.

Benefit: Ensures privacy and smoother transfer of assets upon death.

Irrevocable Trusts

Primary Use: Asset protection and tax planning.

Key Feature: Once assets are transferred, you relinquish control, making them inaccessible to creditors.

Common Types:

Spousal Lifetime Access Trusts (SLATs): Offers access to assets through a spouse while maintaining protection. 

Medicaid Trusts: Protect assets from being counted for Medicaid eligibility. 

Credit Shelter and QTIP Trusts:

For married couples, particularly those with estates approaching or exceeding $2,000,000, Credit Shelter Trusts and QTIP Trusts can minimize taxes while protecting surviving spouses.

Primary Use: Preserve the estate tax exemption of the first spouse to die and provide support to the surviving spouse.

Limitations: Offers no asset protection during your lifetime because you maintain control.

Benefit: Preserves both spouses’ estate tax exemptions and protects assets from remarriage, creditors, and spend-down.

Other Estate Planning Essentials:

Durable Power of Attorney: Empowers a trusted person of your choosing to manage finances if you become incapacitated.

Health Care Proxy and Living Will: Clarifies medical wishes and avoids court intervention.

Homestead Declaration (Massachusetts): Protects up to $1,000,000 in home equity in your primary residence from creditors.

Corporate Entities: Separating Personal and Business Liabilities

In addition to an estate plan to protect your personal assets, it is necessary to consider how to protect and preserve your business assets. Operating your business or managing investments through the right entity can provide a crucial layer of protection. For business owners and real estate investors, placing assets in separate LLCs or entities can shield personal wealth from business liabilities. It is also important to consider agreements between co-owners of a closely held company so that the business interests themselves are not subject to claims by non-owners.

Limited Liability Companies (LLCs)

Protection: Shields personal assets from business liabilities.

Flexible Taxation: Can be taxed as a sole proprietorship, partnership, or corporation.

Corporations (C-Corps and S-Corps)

Limited Liability: Protects shareholders from corporate debts and obligations.

S-Corp Advantage: Pass-through taxation with liability protection.

Combining Strategies for Maximum Protection

The most effective asset protection plans layer several strategies. For instance, a business owner might:

• Hold rental properties in separate LLCs.
• Utilize a shareholder agreement to ensure all corporate interests are free from seizure and stay within the current ownership group; and
• Establish Credit Shelter and QTIP Trust to minimize estate tax and protect assets for their surviving spouse.

Asset protection is most effective when implemented early, well before a problem or disagreement arises. By combining these tools, you can create a robust defense against risks while maintaining control or flexibility. Asset protection isn’t about hiding wealth; it’s about responsibly managing risk and preserving what you’ve built. With the right combination of trusts, business agreements, insurance, and estate planning tools, you can create a legal and financial structure that defends your assets against potential threats while supporting your long-term goals.

Consult with one of Bacon Wilson’s qualified estate planning or commercial attorneys to tailor a strategy that fits your specific situation and goals. Even if you have a plan in place, it is crucial to review your plan regularly to ensure it remains in compliance with constantly changing laws and regulations. Asset protection may seem daunting, but with the right advisor and proper planning, you can enjoy peace of mind knowing your legacy is secure.

Tyler W. Humphrey is an associate with the law firm of Bacon Wilson, P.C. He concentrates his practice in the areas of estate planning, elder law, probate administration, and business and corporate law. Attorney Humphrey is admitted in the Commonwealth of Massachusetts and the State of Connecticut, as well as the U.S. District Court of Connecticut. He can be reached at (413) 781-0560; [email protected]