Learn How to Protect Your Assets in These FAQs

If you have questions about how to protect your hard-earned assets in North Carolina, you've come to the right spot. Jackie Bedard and the team at Carolina Family Estate Planning have compiled these questions and answers about how to protect assets and asset protection planning strategies in North Carolina.
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  • What is a Stretchout Protection Trust (a.k.a., IRA Trust or Retirement Plan Trust)?

    Supercharge Your IRAImportant Update Effective January 1, 2020:

    On December 20, 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) as part of the 2019 omnibus spending bill. The SECURE Act, which is effective January 1, 2020, makes the most dramatic changes to retirement account laws seen in the past decade. While most popular media have focused on the impact of the SECURE Act during the original retirement plan owner’s lifetime, you should be aware the Act also makes potentially catastrophic changes to the tax treatment of retirement plans for beneficiaries upon the account owner’s death.

    For those planning to pass down retirement plans as an inheritance, these SECURE Act rules come as a devastating blow and new tax planning strategies may need to be explored. To learn more about the SECURE Act and planning options, you can download our free memo, SECURE Act: Major Tax & Estate Planning Implications​.

    Strechout Protection Trusts (also known as IRA Trusts, Retirement Plan Trusts) are still a great tool for maximizing the stretchout options available, protecting your child's inheritance from future lawsuits, bankruptcy, and ensuring your retirement accounts stay in your bloodline. To learn more about Stretchout Protection Trusts, continue reading below:


    A Stretchout Protection Trust that is specifically designed to receive your retirement accounts for tax efficiency and asset protection. A Stretchout Protection Trust is separate from your Will or Living Trust. During your lifetime, you remain the owner of your retirement plan, but you name the Stretchout Protection Trust as the beneficiary of the account upon your death.

    Frequently, the Stretchout Protection Trust will be designed to match the distribution pattern of your Will or Living Trust, but the Stretchout Protection Trust is designed precisely to comply with the IRS rules. This will ensure that your beneficiaries remain eligible for the Inherited IRA “stretchout” option.

    In addition to ensuring your beneficiaries get the most out of their “stretchout” option, a properly structured Stretchout Protection Trust can provide several powerful protections. If someday your child goes through a divorce, the retirement accounts are completely protected. If your child is sued or files for bankruptcy, the retirement accounts are protected. If your child dies, the Trust ensures that the funds remain in your bloodline and continue on to your grandchildren.

    If your child or beneficiary is a minor, you can specify who should serve as Trustee while they are young. Plus, rather than your child gaining full control of the account at age 18, you can choose the age your child gains access to the account.

    If your beneficiary is disabled or has special needs (or becomes disabled in the future), the Stretchout Protection Trust can qualify as a “Special Needs Trust” so that the assets don’t count against your beneficiary when he or she is qualifying for Medicaid, SSI, or similar government benefits. This built-in protection allows the inherited money to be spent on allowable expenses, typically things not covered by Medicaid or SSI, so that your beneficiary has a better quality of life while still receiving their important medical benefits.

    Discover How to SUPERCHARGE Your IRA and Maximize Your Family’s Future


  • Should I Name My Estate or Living Trust as the Beneficiary of My IRA or Retirement Plan?

    Supercharge Your IRAIf you read our previous articles on the power of IRA and retirement plan "stretchout" planning and what happens to your IRAs and retirement plans upon death, you might think that a positive solution would be to name your estate as your beneficiary so that the executor you’ve chosen can manage your retirement plans for you.  You chose them because they're responsible and you trust them, so what’s the harm, right?

    Unfortunately, the IRS rules require that if you designate your “estate” as the beneficiary of your retirement account, then the retirement account MUST be distributed according to the 5-year distribution rule. There is no Inherited IRA “stretchout” option.

    Likewise, if you think that you'll be able to name your Living Trust as the beneficiary of your retirement plan, you’ll also run into similar problems. The IRS rules for qualifying for the Inherited IRA “stretchout” option are extremely specific, and a Living Trust typically will not qualify. Thus, if you name your Living Trust as the beneficiary of your retirement plan, your family will again be stuck with the mandatory 5-year distribution option upon your death, causing the account to be prematurely taxed thereby losing the benefit of tax-deferred growth.

    Discover How to SUPERCHARGE Your IRA and Maximize Your Family’s Future


  • Why Should I Consider Asset Protection Planning?

    It’s a sad fact of life and business that one day you, your spouse or child might be faced with a lawsuit or financial catastrophe, such as:

    • An automobile accident with an uninsured  or underinsured motorist
    • Causing an automobile accident with damages beyond the limits of your own automobile insurance policy
    • Divorce
    • Lawsuit resulting from damage or injury taking place at your home or on your property
    • Lawsuit from an disgruntled employee or business partner
    • Professional malpractice allegations
    • Bankruptcy
    • Health crisis (did you know that medical bills are the number one cause of bankruptcy?)

    Asset protection can help to:
    • Have peace of mind that you and your family are protected
    • Reduce or avoid probate and estate taxes
    • Reduce your exposure to malpractice claims
    • Potentially save money on liability and malpractice insurance if less coverage is needed
    • Settle lawsuits more quickly and at reduced amounts—once a plaintiff realizes your assets are protected, they’ll be less inclined to incur any more legal costs knowing that their likelihood of recovery is slim
    • Protect against exemplary, treble, or punitive damages which typically are not covered by liability insurance policies
    • Protect against the bankruptcy of your insurance carrier—there’s no guarantee that they’re still going to be in business when you need them


    Just because someone is careful or competent does not mean that he or she will never be sued or subject to a malpractice claim.  We live in a very litigious society and juries like to blame professionals or business owners because they are perceived to have the wealth and/or insurance to pay damages.  And unfortunately, even frivolous claims can cost a significant amount in lost time and legal fees.  The more barriers you can have in place, the more likely the claim will be dropped faster or never initiated at all.

  • What is Asset Protection Planning?

    It’s an unfortunate fact of doing life and business, that we could one day find ourselves facing a lawsuit or financial disaster, such as:

    • An expensive uninsured or underinsured motor vehicle accident
    • Unanticipated medical bills
    • Divorce
    • Lawsuit from an employee or business partner
    • Professional malpractice allegations
    • Lawsuit resulting from damage or injury occurring at your home or business
    • Bankruptcy

    So What is Asset Protection Planning?

    Asset protection planning is the setting up your property and assets in such a way that it won’t be subject to fickle potential plaintiffs in a lawsuit. Many people don’t think about, but corporations, limited partnerships, limited liability companies all fall under the umbrella of asset protection planning.

    A good asset protection plan allows a person to maintain control over assets that might otherwise be subjected to court control as the result of a lawsuit. Even in frivolous lawsuits, bullying and demands from a plaintiff and their attorneys can cost thousands, even hundreds of thousands in legal fees, lost business and community goodwill.

    Asset Protection is NOT about reducing or eliminating legitimate debts.

    If you legitimately owe someone a debt, asset protection planning will not relieve you of the obligation to pay the debt.  Further, if you voluntarily incur a debt or obligation and then engage in asset protection planning to attempt to shelter or hide your assets from the debt, a court is likely to overturn your asset protection planning as fraudulent.

    So what is the objective of asset protection planning?

    Just because someone is law-abiding and careful, doesn’t mean that they will not be sued. Unfortunately, we live in a litigious society and people are always looking for someone to blame for their misfortune. Often, juries will blame professionals and business owners because they have wealth, the ability to produce more income and insurance.  And while insurance should always be your first line of defense (including personal liability insurance, casualty insurance, and business or malpractice insurance if you are a professional or business owner), often having additional planning and protections in place is prudent to add additional protection against frivolous lawsuits and gold-digging plaintiffs.

    Want to learn more about asset protection planning?  Register for an upcoming seminar or call our office at 919-443-3035 to schedule a Vision Meeting.

  • Doesn't a Revocable Living Trust Provide Asset Protection While I’m Still Alive?

    Estate Planning PitfallsMany people have the impression that a Revocable Living Trust provides them with asset protection, but this generally is not the case. Because you have total access and control over a Revocable Living Trust--including the power to amend, modify, terminate, and revoke the trust entirely, the assets are potentially accessible by lawsuits and creditors and the assets are also countable for purposes of government benefits such as Medicaid or veteran's benefits for long-term care.

    Some of the confusion may stem from discussions that a Revocable Living Trust may contain provisions to provide asset protection to your surviving spouse and children or beneficiaries...but this protection does not start until after your death. To learn more about this type of planning, check out our free guide, Estate Planning Pitfalls: The 12 Most Common Threats to Your Estate & Your Family's Future.


  • Is asset protection planning aimed at eliminating legitimate debts?

    No, absolutely not.  If you owe someone a legitimate debt, asset protection planning is not going to remove your obligation to pay the debt. In particular, if you intentionally incurred a debt or obligation and then placed your asset in a trust or some other asset protection vehicle, this will be deemed a fraudulent transfer and the law will not protect you.

  • If I have an umbrella insurance policy or my employer or business provides Errors & Omission (E&O) insurance or Directors & Officers (D&O) Liability Insurance, do I need to be concerned about liability and asset protection planning?

    Yes.  Umbrella insurance is a great place to start, but unfortunately it doesn’t cover everything.  A colleague once shared a story about a consultant that specialized in liability insurance.  He would be called into major corporations to review their liability insurance and he regular reviews umbrella policies.  On a regular basis, he would find pages of issues or matters not covered by the insurance policies.  Thus, we still recommend asset protection planning, but consider the insurance your first line of defense.

  • I have malpractice insurance, do I need to be concerned with liability and asset protection planning?

    Yes.  For professionals that carry the possibility of malpractice claims, such as doctors, dentists, lawyers, accountants.  For such professions, malpractice is a personal liability—meaning that operating through a business entity such as a corporation nor limited liability company will not protect you from the claim.  This means that if you are sued for malpractice and either you don’t have malpractice insurance or it doesn’t include enough coverage to fully cover the claim, your personal assets will be at risk to the malpractice claim.

  • If I Have a Limited Liability Company (LLC), Do I Need Additional Asset Protection Planning?

    Probably.  Limited Liability Companies (LLCs) are a common asset protection tool for those that operate a business, own an investment property, or own rental property. However, additional asset protection is probably needed. Asset Protection Planning generally includes mitigating risks from all sources, including both business and personal lawsuits, taxes, health care and long-term care costs, and similar.

    For owners of LLCs, it's important to understand the limits of the liability protection provided by the LLC. There are essentially two types of liability that need to be considered: “inside liability” and “outside liability.” 

    Limited Liability Companies (LLCs) Provide "Inside" Liability

    Inside liability refers to liability as a result of business operations—such as disgruntled customers, vendors or employees.  Perhaps you own a construction company and someone becomes injured on the job, or you own an plumbing business and one of your employees caused an accident in the company van.   

    If the business entity is properly structured and maintained (note that this is an important step that many small business owners neglect), then the business entity will shield the business owners personal assets and home from lawsuits resulting from inside liability, with the exception of certain special forms of liability such as malpractice liability.  This means that if the business is sued, typically only the business assets will be at risk to the lawsuit.


    Inside Liability Protection for Business Entity

    "Outside" Liability

    Outside liability is liability resulting from your personal life.  Perhaps you cause a severe car accident, someone is injured on your property, or some other catastrophe.  The person bringing the lawsuit can’t directly take business assets, BUT in some states they can try to claim your ownership in the business—i.e., your stock or ownership interest in the corporation or limited liability company.  Fortunately, in North Carolina, the law does not permit a creditor to take your ownership in the business. A creditor can, however, seek a charging order. A charging order gives the creditor the right to go after any distributions made from the LLC to you as an owner of the LLC.

    Outside Liability of Business Entity

    "Piercing the Corporate Veil"

    It's also important to understand that for an LLC to provide asset protection, you must legitimately operate it as a separate entity--separate bank accounts, separate record-keeping, separate insurance, etc. This is the area where far too many LLC owners get sloppy and jeopardize the asset protection.

    Double Layered Protection

    As an added measure, many business owners or professionals that are at risk of malpractice exposure, such as doctors, dentists, lawyers, and accountants, may want to undertake asset protection planning for their personal assets to create further separation between their personal assets and business assets.  We may consider placing your LLC or business inside a separate asset protection trust for an additional layer of protection.Similarly, it can be prudent to separate higher risk assets, such as automobiles and rental real estate, from other assets and property. 

    Asset Protection Trust for Business Owner

    In our office, we call this “bubbles and boxes.”  The bubbles representing business entities and the boxes representing trusts.  Depending on the asset mix and risks, we may recommend some combination of one or more bubbles and boxes to achieve maximum separation of assets.

    Are You a Sitting Target?

    Unfortunately, due to the nature of their professional or financial stature, some individuals have a higher likelihood of being sued—in other words, those that have something to lose.

    In our years of experience having worked with thousands of clients in the Wake County area, we find that asset protection planning is particularly important for if any of the following apply to you:

    • Own a home and have an estimated net worth of $1M or more;
    • Own vacation property;
    • Own rental property;
    • Are high income-earning professionals;
    • Are high income-earning business owners;
    • Own a business with significant value.

    Don’t leave yourself or your loved ones stuck dealing with the financial aftermath that a lawsuit, medical bills or long-term care costs, or unexpected tragedy can bring to your family. Contact Carolina Family Estate Planning today at (919) 443-3035 or fill out our online form to speak with someone about registering for a seminar or a Vision Meeting. You may also wish request a free copy Jackie Bedard’s book, Estate Planning Pitfalls: The Twelve Most Common Threats To Your Estate & Your Family’s Future.



  • Why is planning advance so important and what are fraudulent conveyances?

    Think of asset protection planning like buying car insurance.  If you haven’t bought insurance yet and you wreck your car, you’re out of luck.  You can’t buy insurance after the fact.  Similarly, if you attempt asset protection planning after a known event, it’s highly likely that a court of law is going to consider this a fraudulent conveyance that was undertaken in contemplation of a lawsuit.