Several clients have contacted me over the last few months about protecting their assets from creditors after they have been notified of a potential claim against them. Unfortunately, when you need the protection, it is too late.
A common misconception is that only wealthy families and people in high-risk professions need to plan for asset protection. In reality, anyone can be sued and lose all of his or her assets. A car accident, foreclosure, job loss, medical crisis, business failure, or even a dog bite can result in a judgment against you. One of my clients with a modest income recently settled a lawsuit that could have resulted in the loss of his home.
You are probably taking advantage of several basic asset protection strategies without knowing it. For example, the first line of defense against liability is insurance, including homeowner’s, automobile, professional liability, general liability, long-term care, and umbrella policies. In North Carolina, if you and your spouse purchased real estate while married, that property is not subject to either of your individual creditors for so long as you remain married. Keep in mind that if you purchased property jointly and then got married, you do not have this protection. You would need to re-title the property. You would also lose this protection if you are divorced or your spouse passes away. I once collected on a judgment after a couple divorced. Assets held in 401(k)s and IRAs are also excluded from creditors. In North Carolina and a few other states, inherited IRAs are also protected.
If you are a landlord, real estate investor, business owner, work in a high-risk profession, or have accumulated or inherited a significant amount of unprotected property, you may wish to consider more sophisticated asset protection planning.
If you take the time to read the articles that I write, you will recognize that I have a pattern of bringing up trusts in just about everything that I write. Leaving your assets in trust can keep your children, spouse or other beneficiaries from having to worry about these issues. Protecting your money from your creditors is hard. Protecting your money from your beneficiaries’ creditors is not. One of the best gifts that you can give your children is an inheritance that protected from their creditors and predators.
Call us if you would like to discuss asset protection strategies for yourself or your beneficiaries.