During my years of practice, unfortunately I have had more than one client whose adult child was involved in a tragic car accident where lives were lost. The vehicle the adult child was driving was registered in a parent’s name, which became a focal point in the ensuing lawsuit filed against the parent, by the families of the deceased. This devastating situation underscores the critical importance of asset protection strategies, such as certain type of Asset Protection Trust planning and/or Limited Liability Companies (LLC), to shield assets from unforeseen liabilities or creditors.
Isn’t Asset Protection Primarily for the Wealthy?
Asset protection is not solely the domain of the wealthy. According to Yahoo Finances’ article, “How to Protect Your Money, Even If You’re Not Rich,” asset protection planning is essential for anyone, regardless of income level, because anyone can face lawsuits or significant taxes.
The primary goal of asset protection planning is to create a legal buffer between you and your assets, safeguarding them from lawsuits, creditors and other claims. This can be achieved through various strategies, including retitling assets under separate legal entities such as Asset Protection Trusts or LLCs, which are particularly effective in providing this separation.
Why Asset Protection Matters for Everyone
Proactive Measures: If you want to protect your assets, taking proactive measures is crucial. Waiting until you face a lawsuit or significant debt can limit your options.
Protection Against Lawsuits: As seen in the client story, unforeseen actions of your children can expose your assets and income to substantial risks and seizure. An accident involving your child or any other family member can lead to lawsuits that jeopardize your financial stability. By proactive asset protection planning, you can ensure your assets are not easily accessible to creditors or claimants.
Who Benefits the Most from Asset Protection Strategies?
While asset protection planning is beneficial for many, certain groups stand to gain the most:
- Individuals with Significant Assets: If you have a substantial amount of assets, such as multiple real properties, significant cash savings and investments, protecting them from potential claims is vital.
- People with Recurring Debt: Those with significant, recurring credit card debt can benefit from shielding their assets.
- Underwater Homeowners: If your mortgage balance exceeds the value of your home, asset protection can help preserve your equity.
- High-Liability Professions: Professionals like doctors and attorneys, who are at a higher risk of lawsuits, can greatly benefit from asset protection strategies.
Why Umbrella Insurance Isn’t Always the Answer
When it comes to protecting your valuable assets, umbrella insurance is a popular choice for many individuals. However, if you own investment properties or have substantial cash savings, relying solely on umbrella insurance may leave you exposed to significant risks. Here’s why umbrella insurance might not be enough and why you should consider asset protection strategies such as LLCs.
Coverage Limits of Umbrella Insurance
Umbrella insurance typically offers liability coverage in increments of $1 million. While this seems substantial, lawsuits involving severe injuries, wrongful death, or extensive property damage can easily exceed these limits. If a court awards damages beyond your policy’s coverage, you will be personally liable for the remaining amount.
Specific Exclusions in Umbrella Policies
Umbrella policies often have exclusions that might leave you vulnerable. For example, certain business activities, professional services, and specific liabilities may not be covered. If your investment properties are part of a business, you may need additional, specialized insurance coverage.
Requirements for Underlying Policies
Umbrella insurance typically requires that you maintain specific coverage limits on your primary insurance policies, such as home and auto insurance. If your underlying policies do not meet these limits or if there are lapses in coverage, your umbrella policy may not provide the necessary protection.
Legal Defense Costs
While umbrella policies usually cover legal defense costs, complex legal battles can quickly exhaust your policy limits. High-profile cases involving significant assets often require extensive legal resources, potentially depleting available coverage.
Asset Exposure in Lawsuits
Significant assets, such as multiple investment properties and substantial cash savings, can make you a prime target in lawsuits. Plaintiffs’ attorneys are likely to pursue higher settlements when they know substantial assets are available, increasing your potential liability beyond what an umbrella policy might cover. In my clients’ experiences, umbrella insurance offered to settle the claims for multimillion-dollar amounts, which the plaintiffs rejected because they wanted their day in court. This situation could result not only in an insurance payout but also in the attachment of my clients’ exposed assets and potential garnishment of future wages.
Property-Specific Risks
Investment properties come with specific risks that might not be fully addressed by standard umbrella policies. Issues such as tenant-related liabilities, property management errors, or local risks might require specialized insurance coverage.
Legal and Ethical Considerations
It’s important to note that asset protection planning must be done legally and ethically. The goal is not to hide assets or evade responsibilities but to ensure that your hard-earned wealth is safeguarded against unjust claims and excessive taxation. This legal separation allows you to preserve your assets while complying with the law.
Conclusion: The Role of an Estate Planning Attorney in Asset Protection
Creating a comprehensive asset protection plan requires specific legal experience in estate planning and precision. Working with our trusted estate planning office in Sharon can help you navigate the complexities of asset protection. Attorney Artika Angel can tailor strategies to your specific situation, ensuring that your assets are well-protected against creditors and unforeseen liabilities. Use the Estate Planning Checklist on our website to start the process of outlining the items you need to protect.
In the unfortunate event of an accident or lawsuit, having a robust asset protection plan in place can provide peace of mind and financial security. Don’t wait for a crisis to take action. Start planning today to safeguard your family’s future and protect your assets from potential threats.
Book a call with Estate & Elder Law Advisory to discuss how our estate team help you secure your financial future with customized asset protection planning.
Key Takeaways
- Importance of Asset Protection: Asset protection strategies, like trusts, are crucial for shielding your assets from potential claims and lawsuits.
- Not Just for the Wealthy: Asset protection planning benefits everyone, regardless of income level, as any estate can face legal and financial challenges.
- Proactive Measures: Taking proactive steps is essential. Waiting until you’re in a legal or financial crisis can limit your options.
- High-Risk Groups: Individuals with significant assets, recurring debt, underwater mortgages, or those in high-liability professions benefit the most from asset protection.
- Effective Strategies: Trusts, retirement accounts under ERISA, and home equity preservation are effective methods for protecting your assets.
- Legal and Ethical Compliance: Asset protection must be done legally and ethically to ensure compliance and avoid penalties.
- Role of an Attorney: Working with an estate planning attorney can help tailor a comprehensive asset protection plan to your specific needs, providing peace of mind and financial security.
