When Protecting Your Assets from Liability Lawsuits,
Err on Side of Caution
See the article below:
It is not easy to create an asset base that will allow you to retire comfortably
and leave some assets to your beneficiaries. And if you do succeed, you
certainly don't want to put it all at risk from personal liability.
That's why asset protection strategies are important. Asset protection
refers to sheltering your home, investments, real property, business and
any other assets you own from lawsuits and other claims. You may not be
able to guarantee that all of your assets are fully protected, but you
can take steps to minimize the chances you can be sued successfully and/or
lose your assets in other ways.
An excellent source is the book "Asset Protection Secrets" (revised
edition, 2013, Brookline Press) by Hillel Presser. His advice is: Shelter
your wealth. Think defensively and realistically. And that advice is not
just for the rich or for those in professions considered risky.
He points out that litigation in the U.S. has reached epidemic proportions;
by his estimation, 100 million lawsuits are filed each year. People in
all kinds of lines of work and businesses are exposed to significant liability
without necessarily realizing it. You cannot predict what you could lose
in a major lawsuit. A plaintiff who wins a few dollars in actual damages
may be awarded millions in punitive damages.
Presser's book explains different ways to protect family homes, non-residential
real estate, investments (including retirement accounts), estates and
inheritances, businesses and other assets. Here are a few ways you can
take to protect yourself.
--Tenancy by the entirety. When a married couple buys a home, there is
a range of options for holding it. Of the types of co-ownership, tenancy
by the entirety (TBE) provides the most meaningful asset protection. TBE
is available only to a husband and wife. It offers right of survivorship
and may protect the asset in certain states, provided only one of the
spouses is sued. This is because, in most states, under TBE their ownership
interests are indivisible and may not be transferred without the other
spouse's consent. Thus, most states do not allow a creditor to attach
TBE property without the consent of both spouses. Your attorney can advise
you as to the restrictions in your state.
--Limited partnerships. Investments are at risk for liability suits when
they are owned in individual names. There are other options to title investments
and other liquid assets. Presser strongly suggests limited partnerships.
A limited partnership has one or more general partners and one or more
limited partners. As a limited partner, you can control the assets, protect
your ownership, maintain operating flexibility, allowing you to plan your
estate better and reduce estate taxes. The most important point, from
an asset protection viewpoint, is that your limited partnership interest
cannot be claimed by your creditor. There are other alternatives, such
as limited liability companies (LLCs), and Presser does a useful job of
discussing their advantages and disadvantages.
--Truly protected retirement accounts. The extent to which retirement
plans are lawsuit-proof depends on state law. Some retirement plans established
under the Employee Retirement Income Security Act of 1974 (ERISA) are
protected from creditor claims. However, not every ERISA pension plan
is lawsuit-proof. You should review the protection with your plan administrator.
IRAs, Roths and SEP IRAs are not ERISA protected. Your protection depends
on state law. There are options to protect you if your plan is not lawsuit-proof.
For example, many states exempt annuities from lawsuits but don't
protect IRAs. Your attorney should be able to advise you based on the
law in your state.
--Trusts. One of your objectives should be to ensure that your assets
will pass to your beneficiaries free of lawsuit or creditor claims. Titling
assets jointly with right of survivorship is one option. Presser also
discusses the use of an irrevocable trust that you fund before you have
As a court mediator who has served for over 12 years, I can tell you that
most defendants do not expect to be sued. It is best to err on the safe
side, and take preventative actions to protect your assets. I recommend
discussing the subject of asset protection with your attorney.
YES, YOU CAN LOSE EVERYTHING!
You may think that your wealth is safe and that you don't need protection.
But don't delude yourself and accept reality — for every 60
minutes you spend making money, spend 60 seconds thinking about how to