I was recently reminded just how important it is to protect hard earned assets when my 87 year old client, whom we’ll call Carol, was in a car accident with another vehicle. She was badly injured as was the other driver and his passenger. Fortunately, everyone survived. However, the other driver insisted Carol was in the wrong and sued. Carol was carrying the required level of liability insurance coverage, but never got around to adding the liability umbrella coverage I recommended. In his suit the other driver sought damages in excess of Carol’s coverage which amounted to over one-half of her savings and Carol isn’t wealthy. Fortunately, we were able, through mediation to settle the claim for far less than the amount demanded, but Carol still had to write a six figure check to resolve the matter. Applying relatively simple and inexpensive asset protection concepts could have prevented Carol from having to write that check. In her case, a liability umbrella policy costing a few hundred dollars per year would have saved Carol from writing that check. But Carol’s case isn’t unique.
It isn’t just serious accidents that can cause financial liability concerns. Financial liability issues come in many forms including: Divorce, demands by creditors, medical issues necessitating long term care and treatment, investments that go bad, loan guarantees that are called by banks or other creditors and claims that arise out of operating a business including business failures, environmental accidents, as well as product and professional liability claims.
Legally protecting your assets is possible using a few straight forward planning concepts:
- Review all of your liability insurance exposure. This includes your home, auto and business liability coverage. Carefully consider an umbrella liability policy for excess damages over the base liability coverage.
- Review your medical and disability coverage. Your medical policy may cover doctor and hospital expenses and possibly rehabilitation after a hospital stay, but what about home care and the time you’re out of work?
- Consider long term care insurance policies.
- Protect your family with life insurance to cover those debts of your estate that would need to be paid in the event of your death.
- If you own a business or any rental real estate, it should be owned and operated by a liability limiting entity like a limited liability company (LLC). You should view the cost of establishing the LLC as a low cost, one time “insurance premium” to protect you from the unforeseen liabilities that can arise.
- Review and update your estate plan, making certain that your plan minimizes your exposure to creditors, estate and income tax and administrative expenses. This is especially important since the U.S. Supreme Court decided in June of last year that IRAs in the hands of a non-spouse beneficiary are not protected from creditors.
- If your children are marrying, carefully explore the benefit of using trusts in your estate plan to preserve assets for your children in the event of their divorce. Don’t rely solely on a prenuptial agreement.
When it comes to any form of insurance, make sure you’re consulting with a qualified insurance professional. Feel free to contact me regarding any questions involving legal and practical asset protection or for any other issues regarding your estate plan or other legal issues.