Your home is one of your most important assets. Protect your home with the best asset protection strategy for greater peace of mind. Without asset protection, your home is at risk if you are the victim of an unexpected lawsuit, creditor attack, and more.
Here’s a list of good, better, and best tips for asset protection for your home:
1. Good Asset Protection: Invest in Insurance
Homeowners Insurance. You should definitely have general homeowner’s liability insurance. It’s your first line of defense for certain claims that arise at your home. But it is often not sufficient to cover claims.
Umbrella Liability Insurance. You should also consider an umbrella liability policy. Umbrella policies are personal liability insurance that cover injuries to other people that occur in your home. Umbrella liability coverage protects beyond the coverage and limits of your other insurance policies (such as home and auto). It also protects the damage caused to their belongings while in your primary residence.
For example, if your neighbor is injured from a slip and fall at your home, they may not be able to work for some time. You could be responsible for compensation for their injury and other damages. General home owner’s 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. Better Asset Protection: Transfer Ownership to Limit Risk
One of the fundamental rules of asset protection is that if you don’t own it, they can’t take it. In addition to having great insurance coverage, consider transferring ownership. It’s important to transfer ownership in advance of a creditor problem. If you’re married, titling your home in the name of the the spouse who is less-at-risk keep your home safer from the more at-risk spouse’s individual liability exposure. Even better, separate revocable trusts are beneficial to married couples in terms of separating ownership while incorporating estate planning benefits.
For example, if you are at a high risk of facing a lawsuit due to your profession, you may 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 at-risk spouse. This strategy still has limitations and may fail if the less-at-risk spouse incurs a liability, is sued, etc. Be aware transferring ownership to someone other than a spouse has other risks (tax and otherwise). Seek expert advice from a qualified attorney you trust.
3. Best Asset Protection: An Asset Protection Trust
The best option to protect your home is to use an effective Asset Protection Trust prepared by a knowledgeable attorney. An Asset Protection Trust involves transferring the asset to a trustee of an irrevocable trust carefully prepared to provide flexibility while also providing maximum asset protection.
Always seek asset protection advice from an attorney who is qualified and who you trust. Asset Protection Trusts are an excellent option for most people and can be drafted many ways. Invest in an Asset Protection Trust that corresponds to your asset protection needs and is relevant to your situation. They are sophisticated instruments. When done properly, they protect your assets from potential liability, they are flexible, and they are simple to understand and operate. It’s important to transfer 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 also 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. Utah calls this a Utah Domestic Asset Protection Trust, or UDAPT. When this trust is appropriate, it works very well and can be flexible.
Third-party Trust (SPA Trust): A Third-party Trust (SPA Trust) is an irrevocable trust where the Settlor establishes and funds the trust and names someone else as the beneficiary. For example, the 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.
Protect your Home with Asset Protection
It is important to stay informed and aware of the risk that your home 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.
Contact us today today and choose the trust that works best for you.
[…] Revocable trusts are not asset protection trusts. Your revocable trust has many benefits making it a valuable and much-needed estate planning tool. However, during your lifetime, it does not protect the assets from creditors. If creditor protection is something important to you, you should look into other options such as umbrella insurance or an asset protection trust. […]