If you’re concerned about the possibility of a lawsuit, you may be worried about losing your property. There are ways to protect your estate if you know what to do.
A Living Trust
A living trust is one way you can prevent creditors or others from taking your estate in a lawsuit. However, the stipulation is that it must be an irrevocable trust, which means you relinquish all ownership of the home or other property to the trust.
Furthermore, you cannot have any authority in regards to the trust, so another person must be named in your place. Otherwise, the law will allow a creditor to attach a judgment to it.
If you create a Qualified Personal Residence Trust or QPRT, you have the right to continue living in the home for as long as it is stipulated in the trust. You can also prevent the transfer of ownership to anyone other than the trust, which will prevent the creditors of any beneficiaries from staking a claim to the home.
Another stipulation you should be aware of is that you must put your home in a trust before a judgment is granted. It only protects against future situations.
Beware that creditors can claim your property if they can prove you conducted a fraudulent transfer, or a transfer with the sole goal of preventing creditors from gaining access to your property. This claim often has merit if you wait to make the transfer until you are having financial problems or if you are insolvent.
Establish a Business Entity
If you are concerned about creditors for your business seizing your personal property, you can set up a limited liability company which separates your business assets from your personal assets. In this situation, only assets owned by the company would be at risk.
Another option is to purchase special insurance beyond the traditional policies. For example, professional liability insurance protects you if you are sued for a business situation. An umbrella policy cover you if you’re involved in a car accident or other situation where your car or home insurance doesn’t pay all of the expenses. In this situation, the umbrella coverage would pay the additional amount to protect your home and other property in a lawsuit.
The time to consider how to protect yourself is before you get in a situation where a lawsuit is a real possibility. It’s a good idea to meet with an estate planning attorney or a business lawyer to find out how you need to set up your assets or business for the best protection for you, your family and your home.