After working hard and accumulating assets for many decades, it is not uncommon for our thoughts to turn to the question: “How I can protect my assets.” We all hear stories from colleagues and friends about the business person who lost everything when their business failed or who suffered a large judgment due to a personal injury and lost significant assets. In one form or another, we all have asset protection sitting uncomfortably in the back of our minds.
The main reason these fears go unresolved is that asset protection involves an extremely complex and evolving mesh of federal and state laws and Court decisions. While this article cannot reconcile all these complexities, it will convey some critical steps you can take to protect yourself.
Assume today you injured someone in a car accident or were served as the defendant in a lawsuit, there are two key questions: 1) do you have adequate insurance coverage for this potential liability? and 2) do you understand it is most likely too late to undertake any asset protection planning?
It is a typical, but wrong, gut reaction to try to move assets to protect them after an incident. People’s first thoughts are to transfer assets into the name of their spouse or children. There are two reasons this is a bad idea: 1) once the claim has arisen, the Indiana Uniform Voidable Transaction Act (I.C. 32-18-2) allows the creditor to void your transfer so it is not likely to do any good whatsoever; 2) when moving assets you are very likely to convert assets that are protected from your creditors to assets that your creditors can seize. For these reasons you should avoid your initial instinct to give your assets to others to “protect” them.
Certain assets you own are already well protected and their ownership should not be altered. These include your personal residence owned with your spouse. This property is designated as Tenancy by the Entireties Real Estate and can only be attached if your creditor has a judgment against both you and your spouse. In most circumstances, this property would continue to be protected and its ownership should not be disturbed.
A second asset that is largely or completely exempt from your creditor claims is your retirement accounts. Please note if you inherited a retirement account from someone else (i.e. an “inherited IRA”) those accounts are NOT exempt from your creditor claims. Under Indiana law, the exemption for these retirement accounts is unlimited outside of bankruptcy, and in 2017 limited to $1,283,025 if you were to file a bankruptcy petition.
The third asset that is protected is the Proceeds and Avails of a life insurance policy (I.C. 27-1-12-14(e)). These protected benefits include the death benefit, cash surrender and loan values, premiums waived, and dividends not received in cash
As stated above, after an incident takes place you do not want to divest one of these protected forms of assets, nor do you want to attempt to create them after an incident. In all circumstances, seek legal advice before you act.
With an eye toward planning in a non-emergency situation, you may want to consider the following:
1) Verify that you have adequate liability insurance. If you do not have an “umbrella policy” you should consider obtaining one.
2) If you are NOT holding your residence as Tenancy by the Entireties Real Estate, or in an Indiana trust that qualifies as a “Matrimonial Trust” under I.C. 30-4-3-35 (effective July 1, 2010) you should consider doing so BEFORE an incident arises. If you executed an estate plan where your residence was placed in trust prior to 2010, you should verify that the transfer was modified to qualify as a transfer to a Matrimonial Trust as soon as possible.
3) Indiana does not currently offer the option for a Self-Settled Asset Protection Trust, but approximately seventeen other states do offer some version of this type of trust. However, even creation of such a trust could be subject to a four or even ten year lookback period, so specialized legal representation would be necessary in such matters.
When considering asset protection, first be careful not to expose assets that are already protected. Second, take simple steps to obtain proper insurance coverage and proper titling of assets. Third, if you have a desire for even more asset protection, do not attempt to do so without specialized legal counsel.
If you have questions regarding the contents of this article, or other similar issues, please contact your HWE relationship attorney or visit us at http://www.hwelaw.com.