Nick Maggard, Estate Planning Expert, Attorney, and Insurance Advisor.
When it comes to liability avoidance, my clients utilize either insurance to cover the cost of a judgement or shield assets from any potential lawsuits by creating a Trust or LLC. Insurance can be the simplest and best way to hedge your bets against potential liability risks. Trusts and LLCs also help by isolating ownership and reducing exposure to what assets will be subject to a lawsuit. The general rule is that if you are in control of the assets then a creditor can attack those assets but it’s more complicated than simply transferring ownership out of the individuals name; you have to be careful trying to do asset protection and gifting assets out of your name especially if you are in a pending litigation.
Anything that you have control over could be a resource that the creditor could go after. If you have a creditor and the creditor sues you by filing a court action naming you as a party, and ultimately wins a judgment against you, then they become a judgment creditor and judgment creditors under the law have certain resources that will allow them to go after the individuals assets. This is essentially the collections process and they can hire a collection attorney to force the sale of the individual’s assets of which may include the sale of a home, other real estate, or bank accounts. Depending on the value and the amount of the loan and the type of creditor some can be very aggressive while others can be more passive. Passive creditors may only file liens while other aggressive creditors may hire third parties to assist them in collecting the debt by giving the third parties a percentage if they are successful – which means that it increases the pressure and resources that a debt collector can utilize.
As an attorney and an insurance provider I routinely recommend liability insurance. It is in my experience that most people are under-insured. A lawsuit nowadays could result in a high dollar judgment and it’s so easy to find yourself in a lawsuit in the world we we live in especially where people are quick to file. It could be a car accident and the victim is feeling pain and therefore decides to file a claim against the wrongful driver or it could be a slip and fall; it’s scary to think that we’ve let things go this far but we have to operate with the way things are and that often includes taking immediate steps to protect what you’ve worked so hard to save.
Because we are greatly underinsured it is extremely important to look at the liability insurance you have on your home and your vehicles and anything else that you own that could cause an injury to somebody else – subjecting yourself to a potential lawsuit. Therefore it is recommended to consider an umbrella policy which is additional insurance tied to your home and auto, usually in amount of 1 million or 2 million in coverage. This additional coverage is on top of your home and auto insurance and it is relatively cheap to have an additional umbrella insurance policy. Ask your local insurance agent to provide you a quote.
Liability insurance will suffice for most families but exceptions could be if you are in a high-risk profession or you own high risk property or vehicles then you need to consider additional measures by by reducing the available items that could be subject to a lawsuit and that is often with an asset protection attorney.
Asset protection attorneys specialize in analyzing legal risk and providing options to mitigate exposure!