Asset protection generally involves planning to make sure that creditors cannot reach your assets or that the creditors of your beneficiaries cannot reach the assets that you are leaving behind for them.

Although many people will use this as a buzzword to motivate people into estate planning, in my experience, these types of issues are usually very minimal or non-existent, and are more often than not, a marketing device. Moreover, many of the more complicated techniques are quite costly to implement, and too expensive for a typical client.

Finally, if you already have creditors, the options for protecting your assets may be severely limited.

Trust Provisions

One practical way to provide asset protection for your beneficiaries (for example, if you have a trust set up for your children), is to have the distributions to your beneficiary made at the discretion of an independent third party trustee. You could also incorporate a "spendthrift" provision in the beneficiary's trust to prevent him or her from transferring or borrowing against their beneficial interest in the trust.

Retirement Accounts

Some assets have inherent creditor protection. For example, retirement accounts such as 401ks and IRAs have creditor protection features that may cause them to be attractive for those who are worried about creditors. Not to mention, retirement plans generally have great tax savings benefits as well. There are, however, limits to how much one can contribute annually to retirement plans, and generally withdrawals from these accounts are limited until one reaches 59 1/2 years of age (with some exceptions).

Asset protection should be part of the conversation you have with an estate planning lawyer; however, it's only one aspect and should be put into the context of your overall family and financial situation.

There are countless reasons, legal or otherwise, for why a person may not be able to transfer his or her assets. Here are a few that estate planning lawyers run into from time to time:

Spendthrift Provisions - If you're the beneficiary of a trust that was established for you by someone else, chances are there is a "spendthrift" provision or clause in the trust. These types of clauses prevent the beneficiary of a trust from giving away their interest in the trust. These are often included to give beneficiaries protection against creditors.

Pension and Retirement Plans - Except for the ability to name a beneficiary, generally, it's not possible to transfer ownership of a pension plan. Similar problems exist with IRAs or other retirement accounts, unless the owner of the account is willing to withdraw the amounts from the IRA thereby causing recognition of taxable income.

Roth IRAs don't result in taxable income upon withdrawal, but the account owner would give up the ability to have the account grow tax free. There's one exception for spouses of the retirement account owner. In the case of spouses, when one dies, the surviving spouse may be able to "rollover" the account into his or her own IRA and continue the tax-deferred growth of the account.

Non-Public Businesses - If you're a partner or shareholder in a business, the governing documents or shareholder agreements may include a provision that limits your ability to transfer shares. Alternatively, securities laws may hinder the ability to transfer ownership in the business to others.

There are other scenarios where transfers of assets may not be possible, for example, a membership in a country club, businesses that are involved in controlled substances such as alcohol, and certain professional practices.

It's therefore important to consider the types of assets that you own when discussing your estate planning options.

One vital part of the estate planning process is making sure that assets with beneficiary designations are updated to be consistent with the other provisions of your estate planning documents. In general, this means that you want these assets to be distributed in a manner that is similar to how the other assets in your trust are distributed.

Assets with Beneficiary Designations

Generally, assets with beneficiary designations include life insurance policies, retirement accounts (such as IRAs and 401ks), as well as Pay-on-Death (aka "POD") accounts. 

Married Persons

In cases where spouses are married, it is often beneficial to have each spouse name one another as the primary beneficiary of retirement accounts. This gives a spouse the chance to inherit the other spouse's retirement account and continue the tax-deferred growth of that asset. In this scenario, usually the couples' joint living trust will be named as the secondary beneficiary on the retirement account.

Naming Minors as Beneficiaries

If your plan calls for naming minors as beneficiaries, you will want to make sure that the forms provide that the money will be held in a custodial account (often called "CUTMA" accounts) until a certain specified age (usually between 18 and 25). Without having such a provision, it's possible that a special person has to be appointed by a Court to receive and account for the money.

For some of you, especially those of you who have been diligent in contributing towards your retirement accounts, these types of assets can represent a significant portion of your assets. By planning properly, you not only ensure that the proper people receive these assets, but also significantly reduce potential tax consequences.