Financial Planning Exemptions: Using Financial Planning Tools

Asset protection and financial planning go hand in hand. Asset protection entails using legal strategies (such as LLC’s and LP’s) to protect your assets, whereas, financial planning uses financial tools and statutory protections (such as annuities, life insurance, and the homestead exemption) to manage and protect your net worth. Anything that cannot be financially protected, through the use of financial planning tools, should be legally protected using Asset Protection.

Now that you know the difference between asset protection and financial planning, let’s talk more on what financial planning encompasses.

There are various tools that you can use in your planning, including but not limited to:

• Retirement Accounts
• The Homestead Exemption
• Life Insurance Contracts
• Annuity Contracts
• College Savings Plans: 529 Plans and Pre-paid Tuition Contracts
• Wage Accounts
• Miscellaneous Asset Exemptions

As a basic overview, State and Federal Laws establish these tools. Also, protection levels differ across different states – so one state may have phenomenal protection (debtor friendly), and another state may have little to no protection (creditor friendly). Florida happens to be one of the more protective states.

Now that you know what financial planning is, I am sure you are asking yourself: “How does financial planning fit in with Asset Protection?”

The answer mostly depends on the debtor’s state laws. Several states – most notably Florida and Texas – are exceptionally debtor-oriented. They exempt, or creditor proof, a wide range of assets. That’s why a large number of debtors relocate to Florida. It is not so much to enjoy their favorable weather, as it is to take advantage of their generous exemption laws.

For instance, Florida protects the entire value of your home, IRAs, life insurance and annuities, and wages. Many of our Florida clients need little or nothing more in terms of additional protection. The state exemption laws cover all – or most – of their assets. Texas is an equally debtor friendly state. On the other hand, a number of states are creditor friendly with narrow exemption laws. New Jersey is an example where relatively few assets are self-protected.

Further, it is especially important to use financial planning tools BEFORE you have a lawsuit. Convert non-exempt assets into exempt assets may only occur before a liability or it may be considered a fraudulent transfer. Many states also have anti-conversion statutes that deny the exemption to certain exempt assets purchased after you have a liability.

Contact me directly if you would like any more information regarding Asset Protection or Estate Planning, or would like a copy of my best-selling books on Asset Protection (complimentary if you mention this Blog).