An umbrella liability insurance policy is one good way to provide additional asset protection.
People work very hard to save money and build up their assets over time. Most Americans have a majority of their net worth in their retirement accounts and primary residences.
One way to lose some of those hard earned assets is through lawsuits. We live in a highly litigious society. If you’re unfortunate enough to be at fault in an automobile accident and your actions cause injury to someone, it is highly likely that you’ll get sued.
An umbrella liability insurance policy is one good way to provide additional asset protection. Typically it costs less than $200 per year for every million dollars of liability protection through an umbrella policy.
Policies are normally established in $1 million dollar increments up to $5 million. By adding this type of insurance coverage to your standard homeowners and auto policies, you can have an extra layer of protection at a fairly reasonable cost.
Another widely used strategy for protecting your assets from creditors is to establish an LLC, or limited liability company, to hold some of your assets including real estate and brokerage accounts.
Laws regulating LLCs vary widely from state to state and some states have much better asset protection laws than others. Two of the best states to set up and maintain LLCs are Nevada and Wyoming. They have some of the most favorable laws in the country and the fees they charge are affordable.
Qualified retirement accounts like 401ks have some protection under ERISA. Individual retirement accounts also have protection under federal law, and under state laws, but once again the laws vary tremendously from state to state.
In California, it’s up to the court’s discretion whether your assets are protected or not. In California, your IRA funds are protected only to the extent that they are necessary for your support.
For example, if you’re 35 years old and have $1 million in your IRA, the court may not find that your IRA is needed for your support because of your age and your earning ability.
If you’re 70 years old, with the same amount saved, the court could determine that those funds are needed and could be protected from creditors.
There is no one ironclad way to guarantee creditor protection, but there are several steps that can be taken to make your assets more difficult to get at. Consult with a competent legal and insurance adviser.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.
