One of the risks of owning property, doing business, or simply living in today’s world is that you’ll one day be sued. Don’t get lulled into believing that just because you’ve never been sued, you never will be. Moreover, just because you live an honest life and have insurance doesn’t mean that you’re judgment-proof. Gaps in insurance coverage and unforeseeable circumstances beyond your control can still expose you to personal liability. Thus, it’s wise to take a few relatively simple steps to protect your assets against such an eventuality, however remote it may seem.
What Doesn’t Work. 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 probate, they offer no personal liability protection. Transferring assets into the name of a third party also usually doesn’t work. Not only are such transfers easy to set aside as fraudulent conveyances, you also run the risk that your trusted friend will run off with your assets.
What Does Work. Holding your assets in one or more limited-liability entities is a proven strategy for protecting them from potential judgment creditors. This is particularly important for income-producing or high-risk assets such as businesses, automobiles and rental properties. LLCs and a wide variety of corporate, limited partnership, and irrevocable trust variations offer such protection.
Nevada’s homestead exemption affords Nevada residents up to $550,000 in home equity protection and only takes a few minutes to file, so you would be a fool indeed not to take advantage of this opportunity. Up to $500,000 held in qualified retirement plans, such as 401(k)’s, individual IRAs, and various pension and profit-sharing plans, are also exempt from judgment liens. 529 education plans provide some asset protection as well.
To determine which of the many available asset protection strategies are right for you, seek the advice of qualified professionals.