Your primary residence is likely one of your most essential assets. The safety, sense of family togetherness, security, and community provided by your home makes it your most treasured belonging.
Protecting your home provides significant peace of mind. Without asset protection, you could become the victim of a lawsuit or experience an unexpected loss of your home.
We’ve put together a list of good, better, and best tips for asset protection when it comes to your residence:
1. A Good Idea: Invest in Insurance
You should definitely have general homeowner’s liability insurance. Additionally, you should consider an umbrella policy. Umbrella liability coverage refers to coverage that protects beyond the existing coverage and limits of other policies. This personal liability insurance covers injuries to other people that occur in your home. It also protects the damage caused to their belongings while in your primary residence.
For instance, if your neighbor is over and trips on a toy left on the ground, they may be unable to work for some time, making you responsible for compensation for their injury. While the liability limits in your home insurance coverage may not be enough to cover the medical expenses, umbrella liability insurance can protect you from these additional costs. We recommend that everyone consider an umbrella policy because it provides additional protection and is relatively inexpensive. That said, insurance doesn’t offer full asset protection for your home.
2. A Better Idea: Transfer Ownership to Lower Your Risk
One of the fundamental rules of asset protection is, in the words of John D. Rockefeller, “Own nothing, but control everything.” If married, placing your home under the name of the less-at-risk spouse can keep your home safer from your individual liability exposure. Even better, separate revocable trusts are beneficial to married couples in terms of separating ownership while incorporating estate planning benefits.
For instance, if you are at a high risk of facing a lawsuit due to your profession, you should consider transferring the ownership of your home to your less risky spouse (or the less risky spouse’s trust). When done right, this ensures full protection from the creditors of the spouse at risk. It’s important to keep in mind, however, that this strategy has limitations and may fail if the less-at-risk spouse incurs a liability, is sued, etc.
3. The Best Idea: Get an Asset Protection Trust
The best option to provide reliable protection to your home is to seek the help of an attorney to prepare an effective Asset Protection Trust. This trust protects your home from creditors and involves transferring the asset to a trustee to manage it on your behalf. Since your home is under the ownership of someone else, your creditors cannot seize the asset. This goes back to that fundamental rule—own nothing, control everything.
It’s critical to make sure you seek asset protection services from a law firm that you trust, as well as invest in an Asset Protection Trust that corresponds to your asset protection needs and is relevant to your situation. Asset Protection Trusts are a good option for most. When done properly, they are simple and protect your assets from potential liability. You should also remember to transfer these assets in advance of a creditor problem.
Two types of asset protection trusts:
-
- Domestic Asset Protection Trust (DAPT):A Domestic Asset Protection Trust is an irrevocable trust where the person who establishes the trust (the Settlor) is an eligible beneficiary. This is often called a Self-settled Spendthrift Trust. It is a relatively new strategy and works in specific circumstances and is only permitted in a handful of US States. When this trust is appropriate, it works very well and can be flexible.Here are the states that currently permit DAPTs:
- Alaska
- Delaware
- Hawaii
- Michigan
- Mississippi
- Missouri
- Nevada
- New Hampshire
- Ohio
- Oklahoma
- Rhode Island
- South Dakota
- Tennessee
- Utah
- Virginia
- West Virginia
- Wyoming
- 541 TrustⓇ: A 541 Trust is an irrevocable trust where the Settlor establishes and funds the trust and names another as the beneficiary (e.g. Settlor establishes the trust for spouse and descendants). This strategy works in all 50 states and provides the best protection for your home. It is easy to understand, operate, modify, or even unwind. More than 200 years of court cases and statutes support this strategy
Keep Your Home Safe with Asset Protection
It is important to stay informed and aware of the risk that your primary residence faces as an asset. Understanding that risk can help you decide on the best asset protection strategies that suit your specific needs. Taking simple steps now can protect you from potential future creditor attacks.
Looking for more information? Reach out to our asset protection attorneys today and choose a trust that best works for you.
- Domestic Asset Protection Trust (DAPT):A Domestic Asset Protection Trust is an irrevocable trust where the person who establishes the trust (the Settlor) is an eligible beneficiary. This is often called a Self-settled Spendthrift Trust. It is a relatively new strategy and works in specific circumstances and is only permitted in a handful of US States. When this trust is appropriate, it works very well and can be flexible.Here are the states that currently permit DAPTs: