Text Box: PROTECTING THE RESIDENCE For many clients, concerns about creditor protection focus primarily on their personal residence, or perhaps a treasured second home. There are several asset-protection techniques that are available for such assets. For married clients, ownership of the residence should be held as tenants by the entirety, since this provides maximum protection from either spouse's creditors. For a widowed or unmarried client, creditor protection can be achieved by transferring the residence to a special split-interest trust in which the grantor retains only a limited term interest. By employing this technique the owner could prevent creditors from reaching the remainder interest in the residence. OUTRIGHT GIFTS OF PROPERTY. Outright gifts are a simple way of protecting assets from potential creditors. Assets that you transfer with no retained right of ownership will no longer be subject to seizure by creditors. A gift of property does not necessarily mean total loss of the use of the property. There are several ways by which a donor can indirectly receive benefits from the gifted property. CREDITOR PROTECTION WITH EXEMPT ASSETS Both federal and state law exempt certain assets from claims of creditors. Transferring assets in advance of a creditor claim to one or more of the exempt categories discussed below can provide substantial asset protection. 1. RETIREMENT ACCOUNTS. Complete creditor protection is allowed by federal law for a participant’s interest in certain employer-sponsored pension plans. Individual Retirement Accounts (IRA), however, do not enjoy this blanket federal exemption, but must rely for protection on state “shield” laws. Pennsylvania generally exempts assets held in an IRA from attachment or execution on a judgment, except for (1) amounts transferred by a debtor to an IRA within one year of filing for bankruptcy (this does not affect rollovers); (2) amounts contributed by the debtor to the IRA in excess of $15,000 within a one-year period; and (3) amounts deemed to be fraudulent conveyances. 2. ANNUITIES. In Pennsylvania creditors of the annuitant can reach only the income interest that will be paid out in installments when the annuity is in pay status, not the underlying assets held inside the annuity contract. A full exemption is also given to annuities if paid to the annuitant's spouse, children, or dependent relative as designated beneficiaries or assignees. Text Box: Page #

Asset-Protection Planning Is An Important Goal for Families

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DISCLAIMER

Martin J. Hagan is licensed to practice law in the Commonwealth of Pennsylvania. This website is intended solely for informational use and is not intended to solicit clients. Likewise, any information contained in or obtained from this web site is for informational purposes only and is not intended to be used as legal advice.

IRS CIRCULAR 230 DISCLAIMER:   Pursuant to Treasury guidelines, any tax advice contained in this website (or any link from it) does not constitute a formal opinion. Accordingly, any tax advice contained in this website (or any link from it) is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be asserted by the Internal Revenue Service. You should seek advice based on your particular circumstances from an independent tax advisor.

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Copyright © 2007 Martin J. Hagan, One Gateway Center - 8 South; Pittsburgh, PA 15222-1435
Last Updated: 06/29/07