Five Steps for Asset Protection from Lawsuits
After working your entire life and diligently saving your money for your retirement, the last thing you want is to be wiped out by a lawsuit. The United States has become more litigious than ever, and there is always a chance that you or your business could be sued. The reality is that the more assets you own, the greater the target you are for lawsuits. It only takes one lawsuit to result in losing most or all of your hard-earned assets. Anyone can be sued, and the best thing you can do is protect yourself from lawsuits by engaging in asset protection. We will discuss five steps to protecting your assets from lawsuits below.
- Create an Asset Protection Trust
An asset protection trust is one of the strongest tools available. When somebody brings a lawsuit against you, they cannot access the assets you have transferred into your trust. These assets are protected from lawsuit verdicts. Suppose you are in a profession where lawsuits are common, such as the medical field or financial industry. Many people in careers that are highly litigious purchase insurance for lawsuits. Unfortunately, many lawsuits cost amounts beyond the insurance policy’s coverage limits. It is wise to engage in other types of asset protection in addition to insurance.
In that case, you would benefit from setting up an asset protection trust and transferring ownership of your assets into the trust. It is important to work with an experienced estate planning lawyer because the trust must be set up correctly to protect your assets. You can create an asset protection trust in the U.S., or you may want to consider creating an international asset protection trust. An experienced attorney can help you evaluate your options.
- Separate Your Assets
Another asset protection strategy is to separate your assets, making it more difficult for people to take your assets through a lawsuit. In some cases, it makes sense to keep your personal assets and business assets separate. It may even be wise to separate your personal assets from your spouse's assets in some cases.
If you have an unincorporated business, you are operating as a sole proprietor. Your personal assets and your business assets are considered to be the same under the law. Suppose you are a therapist operating a clinic as a sole proprietor. Should one of your clients bring a malpractice lawsuit against you, they will be able to take your personal assets and your business assets. Creating a limited liability company (LLC) structure or creating a legal corporation can help protect you from business liability.
- LLCs vs. Corporations
From an asset protection standpoint, operating your business as an LLC or corporation goes a long way to protect your assets. If your business is hit with a lawsuit, it is much more difficult for the plaintiff to access your personal assets. Every business is different, and so are your goals as the owner of the business. We will evaluate your situation and help you determine which legal business structure will serve you the best in the long run.
- Utilize Your Retirement Accounts
If you are the owner of a 401k, you may want to consider transferring more cash into your account. Individual retirement accounts also enjoy protection under federal law as long as they are qualified through ERISA. These types of retirement accounts are one way to protect yourself from lawsuits. Plaintiffs cannot access money in retirement accounts. It is wise to discuss your case with an attorney or a skilled accountant first, however. There are many federal and local regulations related to retirement account savings, and both of these types of accounts have caps on how much you can transfer into them.
- Use the Homestead Exemption
If you have been sued and your financial situation is precarious, you may need to file for bankruptcy. If you do end up filing for bankruptcy, you should take advantage of your state's homestead exemption. You will be able to exempt a certain amount of your home equity and protect it from bankruptcy proceedings.
Asset protection is an important part of a comprehensive estate plan. The sooner you start protecting your assets, the better. At Arnold & Smith, PLLC, Our Charlotte-based estate planning lawyers have helped many clients protect their hard-earned assets. Whether you are a business owner or you own significant assets personally, we can help you take advantage of all legal options to protect yourself. Contact us today to schedule your free initial consultation.