A common misconception is that only wealthy families and people in high risk professions need to have an asset protection plan. But in reality, anyone can be sued. A car accident, foreclosure, unpaid medical bills, or an injured tenant can result in a monetary judgment that will decimate your finances.
What Exactly Is Asset Protection Planning? Asset protection planning is the use of legal structures and strategies to safeguard property that creditors might snatch away, by completely, or, at the very least, partially, protecting it from the creditor’s reach. Below are three tips that you can use right now to protect your assets from creditors, predators, and lawsuits.
Asset Protection Tip #1 –Load Up on Liability Insurance. The first line of defense is insurance, including homeowner’s, automobile, business, professional, malpractice, long-term care, and umbrella policies. Liability insurance not only provides a means to pay money damages, it often includes payment of all or part of the legal fees associated with a lawsuit.
Asset Protection Tip #2 –Maximize Contributions to Your 401(k) or IRA. Under federal law, tax-favored retirement accounts, including 401(k)s and IRAs (but excluding inherited IRAs), are protected from creditors in bankruptcy (with certain limitations). Therefore, maximizing contributions to your company’s 401(k) plan is not only a smart way to increase your retirement savings, but it will also safeguard the investments from creditors, predators, and lawsuits. On the other hand, if your company does not offer a 401(k) plan, then start investing in an IRA for the same reasons.
Asset Protection Tip #3 –Move Rental or Investment Real Estate into an LLC. Aside from having good liability insurance, moving your real estate into a limited liability company (LLC) can be a great way to help protect your assets from creditors, predators, and lawsuits. There are two types of liability that you should be concerned about with rental or investment property: (1) inside liability (where the rental or investment property is the source of the liability, like a slip and fall on the property, and the creditor wants to seize an LLC member’s personal assets) and (2) outside liability (where the creditor of an LLC owner wants to seize LLC assets to satisfy the member’s debt).
One of the experienced lawyers at Charles H. McClenaghan, LLC can help you create an a personalized asset protection plan that best serves you and your family. To schedule a consultation, call (614) 429-1053.