In the last two (2) weeks, I have meet with two (2) clients who have been involved in a car accident and they were concerned about protecting their assets in case of a lawsuit. Reading this article will help you better understand the importance of asset protection and my tips will help you in avoiding a lawsuit or judgement that may result from a car accident
What is Asset Protection?
Asset protection is a combination of estate planning and liability planning for lawsuits and creditor claims that are likely to occur sometime in your future. Asset protection is ethical if it involves advanced planning of titling assets in a manner that minimizes or reduces liability threats.
One of the goals of asset protection is to prevent lawsuits. Another goal of asset protection is to limit risks and asset exposure by advanced planning to place assets beyond the reach of creditors.
Sean Robertson and his team from Gateville Law Firm work with business owners, professional service providers, and others to protect your hard-earned assets from creditors’ risks and lawsuits. Sean Robertson is a graduate of DePaul University College of Law and University of Illinois at Urbana-Champaign.
Here are four (4) asset protection tips:
- Umbrella Insurance and Adequate Insurance
Many people are inadequately insured and lack sufficient homeowners’ insurance, auto insurance, and other insurance to properly protect their assets upon a car accident or wrongful death claim. If you have $300,000 in liability insurance, it likely is inadequate if you have substantial assets that must be protected. Generally, $1 million to $2 million in aggregate insurance coverage is recommended. An umbrella insurance policy is also a good idea. An umbrella insurance policy is considered “extra insurance” because it provides coverage when you have gaps in your auto and homeowners’ insurance policy. The purpose of umbrella insurance is to provide additional insurance and asset protection in case of an injury or accident. An estate planning and asset protection attorney can assist you to evaluate whether you are improperly insured and evaluate your liability risks and asset exposure.
- Evaluate Your Exempt and Non-Exempt Assets
In Illinois, there are certain assets that are exempt and non-exempt in case of a lawsuit. An exempt asset means that it is either exempt under federal or Illinois law from creditor’s claims. A non-exempt asset is an asset that is vulnerable to a car accident or liability risks.
Generally, in Illinois, each person has a $4,000 wild card exemption, which they can use to protect their assets against liability risks. Thus, a couple has $8,000 in wild card exemption. This is insignificant for a lot of couples considering estate planning and asset protection.
Next, your house has $15,000 of homeowners’ exemption per person or $30,000 of equity protection for a married couple. You acquire homestead exemption if the house that you own is the principal place where you and your spouse reside.
Under 735 ILCS 5/12-901, the homestead exemption applies to lots, buildings, condos, mobile homes, and homes. Couples that own their homes by tenancy, by entirety may have additional liability protection due to Illinois law providing additional protection for homesteader’s properties titled in a husband’s and wife’s name.
Thus, a creditor suing one spouse versus both spouses, cannot foreclose a lien or a judgment against the home when the property has homestead protection. However, a creditor may place a lien against the property.
One method to prevent a lien from being placed against a home, especially a home with significant equity, is by setting up a private land trust prior to a lawsuit or creditor risks. Motor vehicles have up to $2,400 in exemption protection. Tax exempt retirement accounts such as 401(k)s, 403(b)s, profit sharing, SEP and SIMPLE IRAs and defined benefits are exempt assets under federal law, 11 U.S.C. Section 522.
Please note that retirement accounts, involving inheritances, have significantly less asset protection than regular retirement accounts. This is due to the fact that inherited retirement assets are not considered qualified retirement plans because non-spouse beneficiaries have limited rights with respect to inherited retirement benefits. A retirement plan trust should be considered because spendthrift protection of the Trust provides asset protection from creditor claims or bankruptcy matters.
- Revocable Living Trust enjoys spendthrift provision
A Revocable Living Trust enables a person to protect their inheritance from a divorcing spouse or creditor’s claims. Parents and adult children should make sure their parents and grandparents have the correct estate plan because assets inherited with a Revocable Living Trust provide additional asset protection for beneficiaries under a Revocable Living Trust.
This is unlike receiving items such as life insurance, a home, or other assets through a direct gift which have limited, or no asset protection benefits at all. If you receive an inheritance through a will or a direct transfer, your asset protection and liability benefits are limited (if any).
In contrasts, if you receive an inheritance through a Revocable Living Trust and you have a car accident, the Revocable Living Trust provides asset protection and liability protection that is not available with direct gifts or inheritance transfers.
For example, consider a husband and wife situation where one spouse has creditor risks and liability concerns. Inheriting the wife’s one-half of assets through a Revocable Living Trust may prevent a creditor such as a Plaintiff in a car accident from receiving your wife’s or husband’s (or your share) half of assets titled in her or his name.
- Vacation and Investment Real Estate Should be Titled in An LLC’s Name
Often, husbands and wives own vacation real estate and investment property in their personal names or their joint names. This is a big liability mistake because both husband and wife could have significant liability risks and creditor concerns.
In Illinois, a husband and wife automatically are assumed to own one-half of each other’s assets without being on a legal title. In Illinois, a husband or wife cannot sell their personal residence that has homestead rights without their husband or wife signing the Warranty Deed or Quit Claim Deed.
The benefits of placing investment assets into an LLC are substantial. When one owns real estate such as a vacation home or investment real estate in their personal name, a creditor can personally go after all the assets of a couple or person. This creates a significant liability concern.
In contrast, re-titling investment or vacation real estate into a Limited Liability Corporation limits the asset of exposure of that property to the investment real estate property. A creditor cannot go after your individually or jointly held assets because the purpose of the LLC is to protect a business asset.
Consulting a qualified asset protection and estate planning attorney is critical. Sean Robertson provides free initial consultations and can give you experienced estate planning and asset protection legal tips to protect your hard-earned assets from the risk of creditor and lawsuit concerns.
EXPERIENCED REAL ESTATE ASSET PROTECTION AND CREDITOR CONCERNS
In conclusion, asset protection and liability protection are critical to plan ahead against liability threats such as a car accident or a porch accident. Sean Robertson is an experienced asset protection attorney that has exceptional asset protection, real estate asset protection, and estate planning experience that can protect your hard-earned assets.
Sean Robertson is a graduate of DePaul University College of Law and concentrates his practice in the areas of wills and trusts, business asset protection, and real estate asset protection. Sean Robertson and Gateville Law Firm may be reached at 630-780-1034 or via online form.