Protecting Your Assets - Myths & Truths

We all run the risk of being thrust into litigation, facing potential judgments, and losing hard-earned assets. Unfortunately, simply living an honest life with decent insurance doesn’t guarantee immunity. Gaps in insurance coverage and unforeseeable circumstances beyond your control can still expose you to personal liability. There are, however, a few relatively simple steps to help protect your assets, however remote a lawsuit may seem.

Myths

A common myth is that transferring your assets to a revocable living trust shields them from creditors. While such trusts offer great benefits in terms of avoiding the time and expense of probate, they offer no personal liability protection. Transferring your assets to your friend, your spouse, or another relative also isn’t a bullet-proof strategy. Not only are such transfers fairly easy to set aside as fraudulent conveyances, but you also run the risk that your trusted friend or relative will take your money and run–a sobering thought perhaps, but reality nonetheless.

Truths

Holding assets in one or more limited-liability entities is a proven and legitimate strategy to protect them from potential judgment creditors. This is particularly important for income-producing and high-risk assets, such as businesses and rental properties. LLCs and a wide variety of corporate, limited partnership, and irrevocable trust variations offer such protection.

Furthermore, Nevada has generous exemption laws that provide additional layers of asset protection. For example, Nevada’s homestead exemption protects up to $550,000 in home equity. In addition, up to $500,000 held in qualified retirement plans (like 401k’s), individual IRA’s, 529 education plans, and various pension and profit-sharing plans may also be exempt from creditor collection.

To determine which of the many available asset protection strategies are right for you, seek the advice of qualified professionals, including your CPA, financial planner, and attorney.