Asset Protection is Less Complicated Than You Think

When clients think about Asset Protection Off-shore trusts or some elaborate scheme of trusts and other entities usually come to mind.  However, there are several vehicles that are less complicated that a client can use that will probably suffice for her protection.

Here are some strategies that are not complicated and relatively easy to implement:

  1.  Purchase an Umbrella policy in addition to a Homeowners policy for your home.  An Umbrella policy is very inexpensive and will protect you for claims that exceed other policies for your home and auto.
  2. Put your house in Tenancy by the Entirety title ownership. This protects the home from creditors if one spouse is sued and the other spouse is not part of the claim.  In Illinois, this type of ownership can now be implemented through a Revocable Living Trust.  Remember, contrary to common belief, a Revocable Living Trust, by itself, does not protect assets.
  3. Fund your retirement plan to the fullest extent possible.  IRAs, 401Ks and the like are not subject to creditor claims in Illinois.
  4. Have your attorney draft a Retirement trust for your retirement assets. When your children inherit your retirement proceeds those proceeds cease to be protected from their creditors.  A Retirement trust will keep those funds protected for your beneficiaries.
  5. Examine your portfolio.  If you have Annuities or Life Insurance, the cash value and the death proceeds are exempt from claims of creditors if they are payable to a spouse, child, parent or any other dependent person to the extent that the proceeds are reasonably necessary for the support of the debtor or its dependents. All group policies are exempt, notwithstanding the above restriction.  This is not an endorsement of investing in these products, but merely an informational characterization of their asset protection potential.

There are some caveats, however.  If there is already a known claim or a possibility of a known claim in existence when you implement these strategies, the strategy will probably fail since it will run afoul of the Fraudulent Transfer Act.  This Act usually nullifies any attempt to transfer non-exempt assets into exempt assets in these situations. Finally, if you want to implement any of the above, you should contact an experienced asset protection attorney to assist you in their implementation and explain to you the Fraudulent Transfer Act and other possible risks involved when performing asset protection.

William S. Wilson is an attorney that concentrates in Asset Protection and Elder Law and can be reached at 708-482-7090 or