Asset Protection Planning

Insurance such as homeowners, auto, medical, and life can provide financial protection from certain risks, but insurance alone may not be enough. Your assets may also be at risk from lawsuits or creditor issues. Protecting your assets may make it more difficult for creditors to seize them if you lose a lawsuit or are forced into bankruptcy.

And while some umbrella insurance policies may provide protection from lawsuits, they generally have limits on the type of risks and amount of coverage they provide.

Legal rules related to asset protection vary by state. Consult with a local attorney to determine the asset protection laws for your state.

In most states, it’s too late to protect your assets after you’ve been sued or filed for bankruptcy protection. And if you transfer assets when you are already having issues with creditors or you know of a possible lawsuit, most states would consider it defrauding your creditors, which can lead to even more problems. Therefore, it’s vital to protect your assets before a lawsuit exists.

State laws may provide some protection from creditors
for certain assets, such as:

• Your personal residence
• Property owned with your spouse
• Life insurance (subject to limitations)
• Certain annuities (subject to limitations)

These rules vary widely and amounts protected may be limited; check with a local attorney for rules in your state.

Federal laws may provide some protection in bankruptcy from creditors for other assets including:

Qualified Retirement Plans such as:

• Pension Plans
• Profit-sharing Plans
• 401(k) Plans
• Simplified Employee Pension (SEP) Plans and Savings Incentive Match Plan for Employees (SIMPLEs)

Limited Protection for Traditional IRAs and Roth IRAs

• $1,171,650 in 2012 (not counting amounts attributable to rollover contributions)
• Special rules apply to amounts rolled over to IRAs

Keep in mind, federal exemptions generally apply in bankruptcy proceedings but may not apply for other types of creditor proceedings.

Consult with a local attorney who has expertise in creditor/debtor laws and asset protection laws in your state.