There is a misconception that only wealthy people who are in high risk professionals should have an asset protection planning. In reality, everyone can be sued. An injured tenant, unpaid medical bills, foreclosure or a car accident can cause in a monetary judgment and will decimate your finances as well. Here are some tips you can use to protect your assets from predators, lawsuits and creditors.
At first you need to understand what asset protection plan is about. It is the use of legal structures and strategies to transform the property that creditors may snatch away which is partially or completely protected. This type of planning cannot be done as a quick fix for existing legal problems. So you should put an asset protection plan in place before a lawsuit is imminent. Let’s look at the tips you can use to shield your assets from lawsuits and creditors.
Tip 1: Load up on Liability Insurance
Insurance include automobile, homeowner’s, professional and long term care. Liability insurance not only provides a means to pay money damages, but often it includes payment of the legal fees associated with a lawsuit. Check your current insurance policies to determine if the policy limits are in line with your net worth and make adjustments. After this, review your policies on annual basis just to make sure that the coverage is still adequate.
Tip 2: Maximize Contributions to IRA
If you contribute to a tax favored retirement account that include 401(k) and IRAs these funds are protected from creditors in bankruptcy. However, maximizing contributions to company’s 401(k) plan is not just a smart way to increase your retirement savings but will also keep the investments away from the creditors , lawsuits and predators. While if your company doesn’t offer 401(k) plan, start investing in an IRA for the same reasons.
Tip 3: Move Rental or Investment Real Estate
If you are an investor, real state flipper or landlord, then aside from having good liability insurance, moving real estate into a limited liability company can be a great way to protect your assets from predators, creditors and lawsuits.
An LLC will limit your inside liability related to real estate like fall accident on the front stairs of your property or fire caused by faulty wiring located at the property to the value of the property.