Yes. This is one of the first things that we look at. First of all, when we start putting together an asset protection plan, we look at insurance. Is the person adequately insured? This should be car insurance for liability for an accident; this should be malpractice insurance if you’re a doctor. Beyond this, it’s very simple to get an umbrella policy to cover your vehicles and your homes, any rental properties, business liability, etc. An umbrella policy is a really good, basic asset protection technique. If the person is not married yet, then we look at doing a prenuptial agreement. This way, a separate property is protected. Furthermore, there are the statutory exemptions. Some assets are protected by law. The most basic one is your personal residence. If you own a home, every state has a homestead exemption for your property. If you live in your home, a certain amount of equity in the property will be preserved from any creditors. California has a homestead exemption of anywhere between $75,000 to $175,000, depending on whether you’re married or single and your age. Some states, like Florida and Texas, have unlimited homestead exemption. The disadvantage of this is you have to live in Florida or Texas for the exemption. If you live in California, the homestead exemption is fairly limited. Other assets that are protected from creditors are ERISA qualified retirement plans. ERISA is the Employee Retirement Income and Services Act, which covers business retirement plans like 401k plans, 403 plans, certain tax deferred annuities, and so forth. Any kind of a business retirement plan will be completely exempt from creditors. IRAs, (Individual Retirement Accounts) are not considered ERISA plans, so they are not fully protected from creditors. Sometimes, we utilize a strategy that involves converting assets from a non-exempt asset into a fully-exempt asset. Other things that are protected to a small degree are annuities and life insurance. In California, we do have a California private retirement plan, which is completely exempt from creditors. It’s a good technique because it’s written into our statutes in California. Anything that’s contributed to a California private retirement plan, which is under rule 704.115 of the California Code of Civil Procedure, is completely protected from creditors. These are basically non-qualified plans, which means you don’t get a tax deduction on them. However, for very high earners who have maxed out their contributions to their 401k plans, these private retirement plans are very useful. What Are Examples f Lawsuits That Professionals Face in Which Asset Protection Would Help?Obviously, business owners have a lot of exposure because of their business activities. Any business can have disputes with vendors or competitors. These could involve contractual disputes, disgruntled employees, or vicarious liability. This means that if an employee is engaged in his or her work and causes an accident, then the business can be sued. If the owner of the business doesn’t take any asset protection steps, then the owner of the business can be sued and held liable. Many kinds of business liabilities exist, but we also face personal liability. Obviously the number one cause of this is a car accident. If you cause a car accident, you’re going to be found liable. Of course, we all have car insurance for liability. However, the limits of the liability coverage under the basic policy may not be enough. I had a client who ran one red light and caused an accident. A young man was killed. This was very sad, and he was really shaken up. The problem was that he had personal liability on his auto policy for only half a million dollars. He was sued for about $5 million. From a personal liability standpoint, one of the biggest hits comes from car wrecks. Other things involve defamation or slander; however, the biggest potential personal liability is a divorce. After all, 50 percent of all marriages end in divorce! If you are a married business owner and you get divorced, it’s very possible that you’ll have to shut the business down. What Are Some Common Questions You Get from Clients Who Are Interested in an Asset Protection Plan?They want to know how they can protect their home from creditors. They’ve heard about these limited liability companies. They want to know about them, how the process works, and what they can do. A lot of people own multiple rental units, and they want to put their 5 rental properties into a limited liability company. Unfortunately, this is not a very good idea. If you do that, you have one limited liability company that owns 5 different properties. Now, you create a potentially “deep pocket”. A creditor of any one of those properties can go after it. People also want to know about the statutory exemptions. They want to know how they can protect their children from lawsuits, divorces, and creditors. For more information on Assets that Cannot Be Protected, a free initial consultation is your next best step. Get the information and legal answers you’re seeking by calling (949) 660-0007 today. |