3 EASY Asset Protection Tips You Can Use RIGHT NOW

What Exactly is Asset Protection Planning?

You’ve probably heard the term “asset protection.” But what is it? Asset planning is the use of legal structures and strategies to transform property that creditors might snatch away into property that is completely, or, at the very least, partially, protected. This type of planning can’t be done as a quick fix for existing legal problems.  Instead, you must put an asset protection plan in place before you’re staring down a lawsuit or other liability. Now is the time to consider implementing one or more of these tips.

Who Can Benefit from Asset Protection Planning?

A very common misconception is that only wealthy families and people in high risk professions need to put together an asset protection plan.  But in reality, anyone can be sued.  A car accident, professional error, injured houseguest or tenant, or unexpected medical bills can result in a monetary judgment that could decimate your finances.  Below are three tips that you can use right now to protect your assets from creditors, predators, and lawsuits.

Now, on to the three tips:

Asset Protection Tip #1
Load Up on Liability Insurance 

The first line of defense against liability is insurance, including homeowner’s, automobile, business, professional, malpractice, long-term care, and umbrella policies.  Liability insurance not only provides a means to pay money damages, it often also includes payment of all or part of the legal fees associated with a lawsuit. If you do not have an umbrella policy, then now is the time to get one! It can be far less expensive than more complex ways to protect your assets. Once you’re insured, check all of your current insurance policies annually to make sure your policy limits and deductibles are in line with your net worth and the benefits have not been reduced

Asset Protection Tip #2
Maximize Contributions to Your 401(k) or IRA

Under federal law, tax-favored retirement accounts (a.k.a. “qualified plans”) such as 401(k)s and IRAs are often protected from creditors in bankruptcy. Therefore, maximizing contributions to your company’s 401(k) plan is not only a smart way to increase your retirement savings, but it will also keep the investments away from creditors, predators, and lawsuits. If your company does not offer a 401(k) plan, start investing in an IRA for the same reasons. Entrepreneurs and self-employed individuals can use this technique, too, through Solo 401(k)s and SEP IRAs.

Asset Protection Tip #3
Move Rental or Investment Real Estate into an LLC

The law treats a property owner as the guarantor of the safety of any user of the property. Consequently, owners will typically be held responsible for injuries that occur on the property, regardless of fault. It’s not hard to imagine how this system can encourage lawsuits, whether legitimate or frivolous. A slip-and-fall incident, faulty wiring fire, a dog bite, or mold-related illness claim could easily exceed insurance liability limits, meaning the owner of a rental property could find their personal assets (including other properties, home, bank accounts, vehicles, and stock) seized to satisfy a judgment from a tenant, visitor, buyer, seller, or lender.

If you are a landlord or real estate investor, moving your real estate into one or more limited liability companies (LLC) is a smart move. An affordable way to protect your personal assets, an LLC can prevent creditors, predators, and lawsuits stemming from your investment properties from seizing your personal assets. If the property is held in a California limited liability company, the creditor is limited to assets held by the LLC to satisfy the claim, namely, the rental property itself. The individual owner’s personal assets remain protected.