Many people include asset protection as one of their goals for estate planning. Various estate planning strategies, such as trusts, can help you protect assets from creditors in Texas. Understanding your legal options for asset protection can help you build a comprehensive estate plan tailored to your circumstances, needs, and financial objectives.
Why Asset Protection Matters
Asset protection can become a goal of estate planning, as creditors may pursue payment of debts from debtors or their estates. When an individual with creditors passes away, those creditors may seek compensation against the individual’s estate. As a result, creditor claims may dissipate family wealth without adequate estate planning. Asset protection can matter for individuals who may face substantial creditor claims, including under circumstances such as:
- Owning businesses
- Professional practitioners (e.g., doctors, lawyers, architects, etc.)
- Having high-net-worths
Individuals and families with significant wealth exposed to creditors can benefit from incorporating asset protection as a goal during estate planning.
Texas-Specific Protections
Texas law provides several tools that allow individuals to protect assets through estate planning. Common asset protection strategies in Texas include:
- Homestead exemption: Homeowners in Texas can protect their primary residence from most debts unrelated to the property. The homestead exemption applies to urban homesteads of 10 acres or less, or rural homesteads of 100 acres or less (200 acres or less for families). The exemption does not protect from debts such as mortgages, home improvement loans, taxes, or child and spousal support.
- Retirement accounts: State and federal law protect qualified retirement accounts, such as 401(k)s, IRAs, and SEP IRAs, from most debts, other than child/spousal support and federal taxes.
- Insurance policies: Texas law protects the benefits, including cash value and proceeds, of certain types of insurance, including life, health, and accident policies issued by an insurance company, mutual company, fraternal benefit society, annuity company, or employer benefit plan.
Estate Planning Strategies for Protecting Assets
Individuals can leverage various estate planning strategies to protect their assets from creditors. Common methods used for asset protection include:
- Irrevocable trusts: Because the law considers assets placed in a trust as no longer owned by the creator of the trust, the creator’s creditors cannot reach those assets to satisfy debts.
- Spendthrift trusts: These trusts restrict the ability of creditors to assign or pledge their interests in the trust and may give trustees discretion over the timing and amount of distributions. As a result, creditors of beneficiaries may only reach trust assets after the trustee issues a distribution to the beneficiary.
- Gifting strategies: Strategic transfers of assets through permissible, tax-free giving can help protect and pass on family wealth.
- Business entities: Utilizing legal structures such as limited liability companies or family limited partnerships can help protect personal assets from business liabilities.
The Importance of Timing
In many cases, parties must implement legal and estate planning strategies before creditors file claims or such claims become known. Transferring assets under estate planning strategies when one knows they owe money to creditors, even when the law otherwise would permit such transfers, can lead to claims of fraudulent transfer by creditors. When a court determines that a party has made a fraudulent transfer – a transfer designed to avoid satisfying liabilities to creditors – the court can unwind the transfer or require the parties in the transfer to compensate creditors for losses.
Contact an Estate Planning Attorney Today
Specific estate planning tools can help you protect your assets from creditors and preserve them for you and your family. Contact Carroll Law Group, PLLC today for a confidential consultation with a knowledgeable estate planning attorney to discuss ways you can protect your assets from creditors through your estate plan.