14 Feb Reason #7 to Review Your Estate Plan: Your Assets are Unnecessarily Exposed to Lawsuits
It’s Valentine’s Day, and in our minds that’s the perfect time to think about the future of the people you love most! You’ve worked hard your whole life to take care of your loved ones…have you thought about their security once you’re gone?
We talk a lot about living trusts and how important they are for giving peace of mind and stability, both now and in the future. But another important part of estate planning is asset protection. Did you know that the assets covered in your revocable living trust are not protected if you were to be sued or came on hard financial times? Remember, a trust’s primary purpose is to quickly and privately convey your assets to your family after you die without probate. But if your valuable assets are not protected from lawsuits and creditors, there won’t be anything left for you or your loved ones down the road! That’s a bit unsettling, but it’s not at all far-fetched.
#4 Reason to Update Your Estate Plan: Your Assets may be Left Unnecessarily Exposed to Lawsuits
Frankly, all of us have real, unpredictable exposure to potential creditors. Suppose you run a red light and cause an accident. Perhaps your guest trips and falls into a yucca plant next to your front porch because your porch light was out (you may laugh, but it’s happened before). Maybe you own a rental property and the roof collapses, the water heater blows, or your tenant’s guest simply slips on some loose gravel on the sidewalk. We don’t have to tell you that each of these situations is just a lawsuit waiting to happen in today’s extremely litigious society. For better or for worse, statistics show that the courts largely tend to favor plaintiffs in these cases. In 2015, 65% of cases in Maricopa County were won by plaintiffs!
Thankfully, there are some special tools that we keep on hand for preventing you from losing everything in cases such as these. One of them is the Limited Liability Company, or LLC. If you own investment properties, you can protect them from lawsuits or creditors by simply putting them in an LLC instead of in your trust. A properly designed and operated LLC is a formidable road block to unjustified lawsuits and a significant negotiating advantage to frustrate a creditor.
Other tools that we use to protect valuable assets are the Irrevocable Trust and Family Limited Partnership (FLP). When you want to transfer property or valuable assets to children or others, doing so through an irrevocable trust or FLP is almost always better than doing it outright. If the Irrevocable Trust or FLP has been properly designed and the transfer is made far enough in advance of a creditor claim, it will be shielded from both your creditors and the creditors of the recipient.
That leads us to the final piece in the asset protection plan: Do not procrastinate. Like they say, it wasn’t raining when Noah built the ark, and you too should act now while the sky is clear. As much as we may want it to, no LLC, Irrevocable Trust, FLP, or other asset protection entity can be set up to protect you from an existing creditor. In fact, attempting to do this may only make things worse.
We would be happy to discuss your situation with you and help you create a plan that will not only protect you from storms to come, but will leave a lasting legacy of security for the ones you love most. Set up an appointment today!