Since writing a blog a few weeks ago about asset protection, I read an article in the Wall Street Journal by Jonathan Clements that I thought was excellent. Here is the link to it http://online.wsj.com/articles/insulating-your-assets-from-lawsuits-1404000337
I liked this article because for the most part it discusses things that most of us are already doing, with emphasis on how those strategies can help protect our assets.
First, Mr. Clements discusses saving for retirement by noting that plans created pursuant to federal laws such as IRAs, 401ks, etc. are usually protected from creditors claims. The take away is that we should do more or most of our investing in these accounts. He did not mention the awesome tax advantage of being able to invest via a Roth IRA and avoid taxes on the profits. Of course the trade off on the Roth is that you cannot deduct the original contribution/investment. That is not a very big tradeoff, if you have good returns on your investment.
Second, Mr. Clements discusses state protection of your primary home aka the homestead exemption. For most of us with an established business or residence, that just means looking up the law to see what it is in our state. Under the Colorado exemption system, homeowners may exempt up to $60,000 of their home or other property covered by the homestead exemption. The homestead exemption is $90,000 if the homeowner, his or her spouse, or dependent is disabled or 60 years of age or older. The take away is that when you need money you may want to borrow against your home, but if you live in Colorado and are over 60, you may want to make sure that you leave at least $90,000 of equity in your home BECAUSE it is safe from creditors.
The homestead exemption can be even more important if you are choosing a place to retire or for some other reason you want to relocate. WHEN CONSIDERING RELOCATION you should always check out the homestead exemptions provided in the states that you are considering. Leading the list are Texas and Florida which traditionally have offered 100% protection for your home.
Third, Mr. Clements reminds us that for those who own a home and a car and have good credit, most insurers provide a liability umbrella at a very reasonable rate. This is often a very inexpensive way to provide some added protection to the assets that we have been able to acquire.
Fourth, if we have our own business or properties we should consider using business entities to segregate our assets, so that if a problem arises in a particular business or property, that problem is isolated to that business or property and cannot adversely affect our other assets.
Fifth, when we do estate planning we should consider whether or not we are at the stage where we want to consider an irrevocable trust. In that consideration people consider the inconvenience to their lifestyle, the situs of the trust (whether it is in a favorable state or country), and the cost.
Remember that it is likely fraud to change our assets after a claim is made against us, but, before there is any claim against us it is good planning to consider how we can protect our assets from potential claims.