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Chapter 1. Asset Protection > Assets Protected by Law

Assets Protected by Law

With some variations and exceptions, all the states have laws that protect life insurance policies and annuities from the claims of creditors. As usual, the IRS has its own loophole that allows it to get at the cash value of a delinquent taxpayer’s life insurance policy.

Another good way to protect life insurance from the claims of creditors is through an Irrevocable Life Insurance Trust or ILIT. This is a great estate and financial planning tool and is described in more detail in Chapter 4. In addition, ERISA (Employee Retirement Income Security Act) pensions, which are employer-sponsored pension and profit-sharing plans, are by law protected from the claims of creditors even in a bankruptcy. However, an important exception to this pension protection law is that the IRS is allowed to take pension assets for unpaid taxes. Protection of non-ERISA plans such as IRAs and Keoghs vary significantly from state to state.


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