Think asset protection is just for the wealthy or high-risk professionals like doctors and lawyers? Think again! Anyone can face a lawsuit from a car accident, foreclosure, unpaid medical bills, or even an injured tenant. Protecting your assets is crucial for everyone. Here’s how you can start safeguarding your hard-earned money and property today.
What Is Asset Protection Planning?
Asset protection planning involves using legal structures and strategies to shield your assets (like accounts and property) from creditors. It’s not a quick fix for existing legal problems, though. Transferring assets to avoid creditors can be considered fraudulent and lead to legal penalties. The key is to plan ahead—before you face a lawsuit. Here are three tips to help you get started:
Tip #1: Load Up on Liability Insurance
Your first line of defense is insurance. This includes homeowner’s or renter’s, automobile, business, professional, malpractice, long-term care, and umbrella policies. Liability insurance not only covers money damages but can also help with legal fees. If you don’t have an umbrella policy, talk to an insurance agent to see if it’s right for you. These policies are relatively inexpensive compared to more advanced asset protection strategies. Review your current policies to ensure your coverage matches the value of your assets, and make adjustments as needed. Don’t forget to review your policies annually to ensure they still provide adequate coverage.
Tip #2: Maximize Contributions to Your 401(k) or IRA
Federal law protects tax-favored retirement accounts, like 401(k)s and IRAs, from creditors in bankruptcy (with some limitations). Maximizing contributions to your company’s 401(k) plan is a smart way to boost your retirement savings and safeguard your assets against creditors, predators, and lawsuits. If your company doesn’t offer a 401(k) plan, consider investing in an IRA for the same benefits.
Tip #3: Move Rental or Investment Real Estate into an LLC
If you’re a landlord or real estate investor, moving your properties into a limited liability company (LLC) can protect your assets from business-related creditors and lawsuits. There are two types of liability to consider:
Inside liability: When the property itself is the source of the liability (e.g., a slip and fall on the property), creditors may try to seize your personal assets to satisfy the debt.
Outside liability: When the debt is personal (not related to the LLC), creditors may try to seize the LLC’s assets to satisfy your personal debt.
A properly formed and operated LLC limits inside liability to the value of the LLC’s assets. In most states, creating an LLC also means that creditors can’t access the LLC’s assets to satisfy personal debts.
Real-Life Example: One of our clients owned an apartment building and was sued by a tenant who claimed lung damage from mold exposure. Because the property was held in an LLC, the tenant could only go after the assets within the LLC, not our client’s personal assets. This protection was crucial in limiting the financial impact of the lawsuit.
If you’re interested in using an LLC to protect your real estate investments, work with an attorney who understands the LLC laws and any potential tax implications for transferring property to another entity to ensure you’re fully protected.
Check out this blog post I wrote 5 years ago about what an LLC really is!
jakoblegal.com/how-does-an-llc-really-work/
You’ve worked hard to accumulate your money and property. Don’t let a lawsuit take it all away. Call us today to evaluate your situation and craft an asset protection plan that best serves you and your loved ones.
