In this uncertain world, families will come to our office with concerns regarding their exposure to liability. Specifically, families will ask us what we can do to protect ourselves while we are alive from creditors, lawsuits, and other legal uncertainties. This is usually a high concern when it comes to families discussing estate planning and asset protection.
However, depending upon the individual circumstances of the particular family, there are a variety of asset protection strategies that we may recommend and assist a family as part of their overall asset protection strategy.
One type of asset protection strategy includes establishing a single member limited liability company (LLC). For example, sometimes we will have families that own a piece of rental property and hold that rental property in their own name. However, titling the rental property in their own name creates an exposure of liability for the family. For instance, should someone slip and fall on the rental property and then sue the family, all of the personal assets could be at risk along with their family home. In this type of situation, we may recommend to create a single member LLC for purposes of managing and holding the rental property. Therefore, should someone slip and fall on the rental property, only the assets of the single member LLC would be at risk and the personal assets of the family would be protected.
Another type of asset protection strategy that may be appropriate depending on the unique circumstances is referred to as a Domestic Asset Protection Trust (DAPT). Tennessee is one of a few states that allow for the establishment of DAPTs. In the states, such as Tennessee, that allow these trusts, the assets that are held in DAPTs are nearly completely protected from creditor claims, spousal support claims, and child support claims. However, the rules for these DAPTs are very specific and must be followed precisely in order for the assets to qualify for this type of special protection from creditors, spousal claims, and child support claims. For instance, the trust must be irrevocable, the trustee cannot be the person who set up the trust, there must be other beneficiaries in addition to the person who set up the trust, and the trust must be governed by the state law that allows for DAPTs. However, these are just a few of the rules that govern DAPTs, and should you believe that a DAPT may be appropriate for your situation, you should consult with an experienced and knowledgeable estate planning attorney before making the decision to establish a DAPT.
If you have questions regarding asset protection strategies including DAPTs, estate planning, avoiding nursing home poverty, estate and inheritance taxes, and avoiding probate nightmares, then I encourage you to attend one of our many free seminars held throughout the greater Nashville area every month. In addition, I encourage you to request one of our many free legal reports that are available on this website.