Planning to preserve a home’s value

by | Feb 11, 2019 | Firm News |

Asset preservation strategies and estate plans make seem similar on a superficial level. They are both things people do to preserve wealth from risk while maintaining control over assets.

However, there is a fundamental difference between the two, and the legal benefits of various strategies fit better with either one or the other in many cases. Here is one common example of a topic where careful attention to prioritizing between the two topics would be necessary.

The risk facing homes

Real estate is often a large part of net worth, especially for people who have invested heavily in their primary residence. There are many incentives to do this, with tax breaks, credits and exemptions. However, the value people hold in their homes may be at risk to creditors once it passes certain limits.

The prioritizing process

People with debts, especially high-amount items such as medical bills, may want to prioritize the immediate preservation of their real estate assets. These are often the holdings that collectors pursue. 

How one should legally treat a home is one of the major points over which asset preservation and estate planning advisors might differ at first. For example, if people claim exemptions on their homes in bankruptcy, they would likely be able to save the residence from foreclosure. Although that money would be away from their creditors reach, there could still be other risks. Namely, the bankruptcy process would probably lock home value into personal estates, making it very difficult to avoid taxation by various common methods. 

The big picture

Asset protection does not require bankruptcy — in fact, it could help people avoid this measure in certain cases. In any case, every action taken with either an asset protection or estate planning strategy has consequences. Sometimes, the effects line up, making something like an irrevocable health care trust potentially beneficial to both goals. However, as illustrated above, that is certainly not always the case.

Financial decisions often have far-reaching ramifications through functions of interest, ownership and appreciation — and many topics are often related. Choosing the correct path forwards requires knowledge and context.