By: M. Wayne Patton
Is it truly possible to completely protect assets from lawsuits? Some people don’t think so. For example, a New York Times Article recently quoted one asset protection attorney as comparing legal planning to setting up roadblocks that are expensive for creditors to smash.
Protect Assets From Lawsuits
Those roadblocks can be toppled, but every time you knock one over, it costs the creditor a lot of money, sometimes up to $500,000. So in most cases the creditors and their attorneys (who often work for contingency fees) choose to settle and take the easy dollars.
To most people, the words “asset protection” conjure images of offshore bank accounts reserved for the ulta wealthy or James Bonds of the world. But that’s a narrow view. Almost everyone needs some sort of asset protection, even if it’s just intended to protect the equity in a home. Professionals with above average risk of being sued like architects, doctors, and lawyers also need to pay special attention to their potential exposure and take special steps to protect assets from lawsuits.
The First Step In Protecting Assets From Lawsuits
The first thing to do is assess what assets you have and which of those assets are already exempt under applicable laws. Asset exemption vary from state to state. For example, primary residences or “homesteads” in Florida are absolutely protected against creditor claims. Most states don’t provide exemptions as generous as the Florida homestead exemption, but all states do provide some statutory protections for things like IRA accounts, life insurance policies, annuities, etc.
After an initial assessment, you have to “wear the hat” of someone who would be suing you. This seems weird, but it’s absolutely critical if you want to protect assets from lawsuits. This is why it makes a lot of sense to hire an asset protection attorney who has experience pursuing debtors in addition to protecting assets. Having an attorney who has worked on both sides of the ball can only help your cause in protecting your assets from lawsuits.
Insurance and Trusts
When looking at a lawsuit from the standpoint of a creditor, what you want is the easily accessible pot of money. Insurance is the first thing that most creditor attorneys look for, because insurance companies are required by law to pay the claims of their insured. You can bet that having some insurance is a smart asset protection play in the context of lawsuits. If nothing else, you need to have a policy that covers your attorney fees.
Just like insurance, trusts need to be put in place before trouble is on the horizon. You can’t call an insurance agent and ask for fire insurance while your house is on fire. The same applies to trusts. They are prophylactic in nature, and you need to put them in place before the fires start. That’s true whether you want to create a traditional trust to protect assets for your children, a domestic asset protection trust (a.k.a. DAPT), or a self-settled offshore asset protection trust. They need to be put in place well in advance, if you intend for them to protect assets from lawsuits.
The trick is to put a plan in place today that protects you against a lawsuit being filed by some unknown creditor in the future.