Most people spend more time planning a family vacation than protecting their wealth from a lawsuit. Thus, it’s one of the topics that doesn’t enter one’s mind until it happens. So, that’s the only thing in their mind. Let’s look at some asset protection planning facts and lawsuit statistics. Knowing the benefits of asset protection, gathering information about planning your strategy, then taking action can help you secure your wealth before losing everything you own.
In fact, some staff members from our company just got off the phone with a client; a very nice gentleman in his 60s. He lives in a $3 million home in California, has a couple million dollars in investments. Had a few drinks. Didn’t go overboard. Just has one more than he should have. Not slurring. Not staggering. Gets into his car. Crashes. Someone in the other car dies! He was just like half a percent over the legal limit.
Now, he lives in the community property state of California. So everything he has, everything his wife has, POOF. Gone. Frozen. Seized in a lawsuit. Wasn’t his wife’s fault. Not her fault that she now has to be homeless in her 60s; homeless after the two of them worked their tails off for years in order to have a secure retirement. Yes, it happens that quickly. The causes of lawsuits happen can happen in an instant. Give us a call and our in-house attorneys and consultants can help.
So, let’s look at some asset protection planning facts and lawsuit statistics. If you have assets to protect, it is essential that you know the benefits of asset protection. It is important that you gather information about planning your strategy. Then take action to help you secure your wealth before you lose everything you own. .
- 78% of lawsuit defendants never thought it would happen to them
- The US has 80% of the world’s lawyers.
- 96% of all lawsuits are filed in the U.S.
- A new lawsuit is filed every 30 seconds, on average
- The self-employed and small business owners have a 33% chance of becoming a defendant in a lawsuit
- There are over 100,000 students in law school today
- The median damages awards are $201,000.
- FBI reports that a quarter million criminals make their living through lawsuits
- Asset Protection is not just for the wealthy. Recent studies show that the average income bracket for targeted lawsuits is under $200,000 a year.
Why Plan Ahead
By establishing an asset protection plan before it’s necessary, you are preserving your wealth. First, something happens that leaves you vulnerable. Then, someone hits you with a lawsuit jeopardizes your financial well being. Any transfer of your assets at that point is subject to scrutiny under fraudulent transfer laws. When someone sues you and you give your assets to a family member, courts can quickly interpret it as an attempt to defraud a creditor. As such, the creditor can now sue your family member.
If you transfer assets or property knowing that someone will likely sue you, you could face with defending the asset transfer. As such, the transfer could be disregarded by a court or reversed and it may come with additional fines or penalties. That is to say, asset protection is much more difficult after you need it. However it is possible to protect yourself after a lawsuit. It is just subject to more scrutiny.
Where Liability Comes From
Liability can come from many situations that seem harmless, for example; one’s own home, automobile, workplace, employee, spouse, real estate investments, having a swimming pool, even minor children. Liability is all around us at almost any given time.
Over a one-year period, the two most frequent kinds of lawsuits arose from automobile accidents (60%) and liability occurring on someone’s premises from people who claim they were injured due to improperly maintained or dangerous property (17%). They key thing is many of these are cases where people are sued for far beyond their insurance limits.
In 92% of tort cases, the plaintiff cited personal injury as the type of harm involved. Property damage was cited in 5%, and financial loss or injury to reputation was claimed in the remaining 3%. The majority of tort cases involving personal injury (64%) or property damage (60%) were automobile torts.
In some cases an individual cannot limit their liability outside of separating personal and business assets. This is where planning ahead for personal asset protection pays off.
Unprotected Liability Exposure
Many business owners use corporations or LLCs to defend against business liability. In other types of ownership, such as the sole proprietorship or partnership, there is no protection at all. Consider that liability often strikes from the least expected places. So that is why it is important to know where you are vulnerable and then take steps to protect your assets. Here are some examples of where you may be exposed.
We know of one family from Vancouver, Washington whose 15 year old son simply set off some fireworks. It started a fire that burned 48,000 acres. The parents are now ordered to pay $36 million in damages. A 10-year-old boy from just north of Los Angeles, where our organization was headquarters for 20 years, admitted to setting a fire. The blaze charred more than 38,000 acres and destroyed 21 homes in the northern L.A. County community, leaving the devastated parents on the hook.
Lawsuit Liability Statistics
- Parents are 100% liable for the actions of their minor children. Sometimes adult children still living at home as dependents create risk. There have been cases where children have had an underage party with alcohol at the family home. Others where an auto accident resulted in a devastating lawsuit.
- Investment properties and owning real estate is an open door to liability. Personal injuries, accidents and other incidents result in tenants and their guest suing the property owners.
- Marriage often doubles one’s liability. By introducing the responsibility of a spouse’s debts and actions in many states – liability from one partner in a marriage can expose the assets of the other spouse. This is especially the case in community property states. It is slightly less so states that offer tenancy by the entireties.
- Having employees, business vehicles or a workplace can jeopardize the personal assets of the business owner.
- Some states have homestead protection, but most do not protect the full value of the home. So, know the homestead exemptions by state.
- Some states protect IRAs from judgments but some not fully. Some states protect all IRAs and some let creditors take Roth IRAs. Knowing the IRA creditor protection by state may give you some ideas about how much you can secure in this type of retirement plan.
Asset protection planning is the analysis each individual’s risk and placing a barrier around the assets exposed to that risk using an appropriate legal tool. If asset protection is needed, it comes in many forms. Asset protection trusts, LLCs. US and offshore structures that we establish for clients every day of the week. So, there are ways to shield assets from all of the dangers out there, whether it’s from being a parent or an anesthesiologist.