Thursday, May 21, 2009

Asset Protection

Most people have assets; that is, money and material items. You might own a home and a car, a business, a professional practice; have a bank account, some jewelry, maybe a collection of baseball cards or coins, perhaps some furniture. Those of you lucky enough to have a good deal of valuable assets, creating a portfolio of wealth, need a way to protect those assets from risk.

Asset protection planning is a process by which you organize your assets--personal, business and/or professional--and employ legal tools to guard against risk of future creditors. Asset protection techniques are designed to deter potential creditors from going after you, and discourage them if they do, generally by making it difficult or impossible for them to take hold of your assets or collect judgments against you.

There is a very sharp dividing line between “legal” asset protection planning and actions to defraud legitimate creditors, which are criminal. For that reason it is essential to have an attorney guide you through the process. It is also a good idea to integrate asset protection into your estate and tax planning; and, like a portfolio, asset protection should be diversified. Don’t rely on one method.

So who are these creditors? These days, professionals (doctors, lawyers, accountants, etc.), as well as business and property owners all face increased risk from out-of-control jury awards and zealous regulators. If you are sued, your insurance should cover some of your losses. Asset protection planning isn’t a replacement for insurance, but it is a backstop--a way to shield some of your wealth should you be hit with a big judgment that isn’t fully covered. And the time to tuck assets behind shields is when you are not being sued. Wait until a creditor comes knocking and there is a greater risk that a transfer will be invalidated as fraudulent.

How do you know if you need asset protection? To some extent, most people should try to protect their assets to the best of their ability, but there are some people who need more asset protection than others. Below is a list of the most common people who need asset protection:

* The very wealthy - People who are financially well off, and especially those who fall into the rich category, are more at-risk for lawsuits and other methods of trying to get your assets. The very wealthy are the most common group of people who need asset protection.

* People with imminent problems - If you know that you will face some legal, financial, or even medical difficulty in the near future, you may need to protect your assets. Examples of this include divorce, bankruptcy, serious illness, etc. Anytime you know that someone may try to take from you in the near future for any reason, you should begin a plan to protect your assets.

* People with high risk jobs (Jobs that attract lawsuits) - People who work in a profession that has a very high liability risk need asset protection. This may include many types of jobs in the medical and pharmaceutical industry, as well as construction, law and finance. Even though you may have insurance, your coverage may not cover you or may not be sufficient. You should take extra precaution and protect your assets.

Even if you aren’t in any of the above groups, you should consider some degree of asset protection. If you own your own business, you probably need some sort of asset protection. Injuries on your property could lead to a lawsuit that could cause you to lose many of your assets, and insurance companies can often find loopholes to avoid paying all (or any) of the amount that is owed.

What are the rules for Medicaid qualification?

Medicaid is a federal program that provides health coverage for people with limited assets and incomes. It covers the cost of nursing home care for those who meet the program’s economic requirements for eligibility.

Though it’s a federal program, Medicaid is administered by the states. Federal law empowers each state to enforce Medicaid eligibility rules according to its own interpretation. This means that application of these rules can very significantly from state to state and, in some states, from county to county. Your Medicaid planning advisor can best help you determine how the rules apply to your specific circumstances in your specific locality. Before you get into the specifics, however, it’s a good idea to familiarize yourself with the general federal guidelines for Medicaid qualification.

Generally speaking, assets fall into two categories: “countable” and “non-countable”. To qualify for Medicaid benefits, a nursing home resident can have $2,000 ($3,000 if husband and wife are in a facility) in countable assets in 2009. The spouse of a nursing home resident, or “community spouse”, can retain between a minimum of $20,880 and a maximum of $109,560 (2009) of the couple’s joint countable assets. (These amounts are adjusted annually for inflation.)

What happens to a Medicaid recipient’s estate when he or she passes away? Like so much else, that depends on whether they have properly planned to protect it. When a Medicaid recipient dies, the state must attempt to recover the benefits paid to that individual from his or her estate - that is a requirement under federal Medicaid law.

In addition, the state can place a lien on an unmarried Medicaid recipient’s home unless certain dependent relatives live on the premises or the state permits a “Homestead Exemption”. Sale of the property while the recipient is still living could result in the loss of Medicaid coverage (due to
excessive assets) and an obligation to use the sale proceeds to satisfy the lien.