The US files about a million lawsuits and judgments annually, according to the Bureau of Justice Statistics. America is now the nation with the highest number of lawsuits worldwide. In actuality, the US accounts for 96% of global lawsuits despite having just 4.4% of the world’s population. With foolproof asset protection, you can rest easy knowing that your hard-earned money will be safeguarded if you become the next victim of these statistics.
When attempts to resolve disputes outside of court fail, lawsuits are filed. Both defendants and plaintiffs fail to reach a compromise for a variety of reasons. Legal bills and court costs cause both parties to dig themselves deeper financial holes as soon as the fireworks begin. Each party’s chance of losing money rises as a result.
Tens of millions of dollars are spent on the legal procedure from complaint to settlement, which can wipe out a person’s finances in certain situations. The majority of legal professionals concur that bulletproofing assets is the first step in minimizing loss from court cases. Thus, creating a practical and tactical plan is crucial.
“A policeman’s “law-suit” is the most successful one.”
-Frederick Frost
Preserving Resources Ahead of a Complaint
According to Forbes blogger Robert Pagliarini, “those with ‘deep pockets’ are the ones who are sued, not those with few assets.”
Many of us try to keep our belongings safe by abstaining from risky activities. We take care to avoid confrontations and make an effort to stay out of people’s way. Almost everyone engages in this. Still, some torts lead to lawsuits. A person can always expect to be sued, no matter how careful they are. It’s a fact that arguments do arise.
Therefore, we must make sure that our assets are impervious to loss due to legal actions and rulings. Knowing what to do is the first step towards taking action before an accident occurs.
This is the most often used one that some people are aware of. Getting insurance is usually the first move a person takes in the line of defence against a lawsuit. Life, health, house, and auto insurance are some of the most precious assets that are protected by insurance. That’s just one step; most entrepreneurs ought to take far more.
Insurance Is Insufficient
Insurance salespeople frequently advise having additional liability insurance coverage to safeguard assets against significant claims and litigation. This can be added to both house and vehicle insurance. In the business, this is referred to as umbrella liability coverage.
According to Pagliarini, the amount of an umbrella liability policy needs to be “at least equal to your net worth.” For instance, you ought to get a $1 million umbrella liability policy if your projected net worth is $1 million.
Umbrella insurance, according to Allstate Insurance, is an addition to your present liability limits. Let’s take an example where you are found guilty and your share of the damages and injuries is $2.5 million. However, your policy’s $1 million liability limit is in effect right now. You now have $1.5 million that was not previously disclosed. This sum is referred to as “out-of-pocket expenses.”
An extension to your policy’s liability limitations above the maximum offered would make up the difference when you purchased an umbrella policy. However, umbrella insurance is not without limitations.
There is less to lose when your assets are protected by a well-thought-out plan that incorporates insurance.
Issues with Insurance
Insurance is a useful tool, but it is far from sufficient. First, the need to maintain low rates is the reason behind the exclusions included in today’s insurance policies. As one insurance industry professional put it to us, “My company will do anything they can to squirm out of paying a claim.” “Your policy doesn’t cover that,” is a prevalent thought that many prospective claimants who have paid their premiums consistently often have in their minds. On top of that, there is the obvious reality that a large number of lawsuits considerably exceed insurance limits.
It’s What You Preserve
Your lifestyle and security are impacted when assets such as bank accounts, cash, vehicles, residences, investment properties, or your income is lost. For people, families, and company owners, the personal consequences might be disastrous.
However, financial stability, as well as personal and commercial assets, are regularly threatened by lawsuits and judgments.
Mark Suster, a venture capitalist and entrepreneur, claims that the number of lawsuits is increasing because “founders have been conditioned that suing is okay and there is much money at stake.”
Do you run your own business? If you are an owner of your own company, you need to keep your assets and corporate assets apart. It’s also your responsibility as an entrepreneur to understand the best ways to preserve what you’ve created and safeguard your assets.
Resources Safeguarded by National and State Laws
Did you know that the law shields some assets from being lost in court cases? The degree of protection that the majority of your assets have from creditors and judgments is determined by federal and state regulations. These regulations shield limited partners of limited partnerships (LPs), members of limited liability companies (LLCs), and corporate owners against claims made against their respective entities.
Real Estate and LLCs
Arnstein & Lehr’s Chicago office’s head of trusts and estates practice area, Jay Tarshis, argues that owning real estate and other assets under distinct limited liability firms can protect them.
It erects a wall around that thing. It resembles erecting a wall around your possessions and yourself. You could have a tall wall that would be protective but very expensive and difficult to live with, or you could be able to sleep just well with a shorter wall because you realize that the true threat might be somewhat remote.
Please do yourself a favor and visit the official website of the state in which you live and/or conduct business to learn about asset protection legislation.
“Our companies are our babies, at least to us entrepreneurs. We take all the necessary steps to guarantee our baby’s safe arrival and long, healthy life. But a lot of the time, we become so focused on providing for that child that we neglect to think for our future.
-Casy Bobby
ERISA Schemes
One of the most well-known assets that are shielded against lawsuit losses by the federal government is eligible profit-sharing and pension plans, which include retirement plans such as 401(k). This act is known by its legislative name, ERISA, the Employee Retirement Income Security Act of 1974. The ERISA protections apply to any rollover of funds from the qualifying account into an IRA.
Plans for Unbreakable Asset Protection
There is a significant chance that those who operate small enterprises, are self-employed, or are entrepreneurs could have their assets threatened by business-related matters. You may decide to run the company as a limited liability company (LLC) or an S corporation to mitigate these kinds of hazards. The greatest way to reduce asset loss, according to asset planners and legal experts, is to form an LLC. “Operating under a S corporation or LLC is the better bet because it’s harder for creditors to take your share of the business to satisfy a personal debt,” according to Newport Beach, California attorney Jeffrey Verdon.
Someone can sue you personally in addition to your company. In either case, an LLC can safeguard you. An LLC has legal protections that allow it to defend its owners (members) from personal culpability in the event of a lawsuit. On the other hand, the LLC may also protect if a member is sued individually, for example, in a car accident case with losses exceeding insurance limits. In other words, the business can protect an LLC member’s stake in the LLC as well as its assets against legal action.
Attorneys also strongly advise creating an Asset-Protection Trust for self-employed people with substantial assets, as well as for doctors, real estate developers, and other professionals who frequently face legal action. This is typically the most effective legal strategy to protect liquid assets, particularly when using an offshore trust with a trustee who lives outside the jurisdiction of local courts.
Types of Trusts
Because these trusts are irreversible, the courts cannot force you to make changes that would give them the right to take trust assets, provided that the trust is properly constituted. Rather, a trustee chooses which distributions are optimal for the trust’s objectives. If you become the subject of a lawsuit that could seize your assets, the trustee would have the authority to cease payments. Because of this, these kinds of trusts are among the most effective and reliable asset protection strategies on the market right now.
Some people might think that the only professionals who need to safeguard their assets are doctors, CEOs, and other litigious business owners. This is untrue. As previously mentioned, mishaps and inadvertent situations occur daily. These regrettable incidents may result in judgments that attach property and garnish salaries. This covers divorce, civil lawsuits, and voluntary or involuntary bankruptcy. Every day, lawsuit claims that exceed the coverage limits of insurance policies occur.
Easy Strategies to Protect Your Assets
Comparing asset protection to the alternative, it’s quite simple. Usually, failing to secure your assets before receiving allegations about you is what complicates asset protection. Some people’s ignorance or low-cost perceptions prevent them from doing the necessary research and putting asset-protection policies into action. However, there are a few low-cost, simpler methods of asset protection that anybody can use:
• One or more LLCs or corporations to run enterprises.
• A different LLC for every property that is invested in.
• An LLC to store valuables like stock portfolios and savings accounts.
• Establish an offshore trust for highly liquid assets.
• A retirement plan offered by the employer.
• Umbrella insurance, which offers additional protection against personal injury claims than do house and auto policies.
• Making use of resident state legislation for life insurance, annuities, and homestead exemptions. (Did you know that in certain states, reducing your mortgage can shield your cash from other risks?)
• Never combine personal and corporate assets. This implies that personal assets may not be at risk if your business is sued, and vice versa.
What’s the Meaning of All This?
When it comes to the largest error that many people make, most legal experts and asset protection professionals agree. It is the act of postponing asset protection for both individuals and businesses until it is too late.
People who own businesses and people need to prepare for the litigious climate of today. They have to prepare and take action when, as asset protection attorneys would say, “the waters are calm.” Once someone is aware of a potentially dangerous situation, asset transfers may be halted by the court. These transfers are known as fraudulent conveyances in court. It is more difficult to defend yourself once someone has sued you or threatened to sue you. The time to protect your assets is now.
“Avoid lawsuits; they deplete your property, pervert your conscience, and harm your health.”
Philosopher Jean de la Bruyere was French.
A Concluding Remark
As said at the opening of this article, plaintiffs’ attorneys file, contest, and settle an increasing number of lawsuits, judgments, and legal actions each day in the United States. It becomes so big that it is quite humorous for everyone concerned.
