Several Steps to Protect your Assets and Wealth
By: Patricia K., Published: Apr 15, 2020 | Related: Unclaimed Assets
Lawsuits are most often filed against those who have substantial assets. If you or someone close to you is expecting an inheritance, selling a business, winning a legal proceeding or signing a lucrative contract, there are several steps that should be taken to protect that money and property.
Increase Liability Insurance
The first and best line of defense against possible or pending litigation is increasing the amount of liability on your insurance policies. For personal umbrella liability, the amount of coverage should be aligned with your entire net worth. If one of your relatives dies and leaves you $5 million, you will want your liability to be $5 million. Expect to pay up to $300 for each million of coverage. Many wealthy people have up to $10 million of liability insurance just to be on the safe side.
While the laws of every state are different and depend on how you received your funds, depositing the money into a joint bank account could automatically make half of it belong to your spouse. In some cases, this would not present a problem, but for others, it could turn into a legal nightmare. If you were married before and have children from that relationship, they may receive less money when you die if you have added a new spouse and offspring to your will. This becomes more problematic if you are planning to divorce your spouse. Having separate assets is the smart move.
Protect Against Renters
After you receive your windfall, you may want to purchase a property to rent out. Before you invest, create a corporation or limited liability company (LLC) to protect your personal assets from tenant lawsuits. If a renter decided to sue you for several million dollars, the only assets in the line of fire are those held by the business entity. Your home, your bank accounts and other properties outside of the corporation or LLC would be safe.
Review Joint Accounts
Joint bank accounts are often convenient, but they can become tricky business in the event of a lawsuit. Whether it is an account you hold with your spouse, your children, your parents, a housemate or a business partner, the funds can be completely wiped out by a divorce, a lawsuit or a tax lien. This is why it is important to keep personal assets separate whenever possible.
Eliminate Informal Partnerships
If you have entered into an informal business partnership, be warned that it could go wrong very quickly. Much like having a joint bank account, you could end up being responsible for the other person's actions. Even worse, you could lose all of your assets if your business partner is sued. As an example, if you and your partner operate an informal consulting business, and the other person causes an auto accident on the way to an appointment, your assets could be seized in a legal proceeding. Do it the right way and formalize the business relationship.
Create a Business Entity
Perhaps you have decided to forgo a partnership and are simply running a small business on the side as a hobby. This is called a sole proprietorship, and it is generally much safer than having partners, but it does not protect you against liability if you are sued. Although it may seem unnecessary, having your attorney set up an LLC or a corporation can protect your personal assets if something should go wrong.
Whether it is by chance or by choice, becoming suddenly wealthy will change your life in a variety of ways. You will also have the opportunity to improve the lives of your family members, friends and your community. This will only happen if you are able to hold on to your assets. Having a great deal of money can make you the target of lawsuits or other schemes to take your wealth. The best defense is to be prepared. Consult with your lawyer to ensure you have the proper safeguards in place should you ever be sued by another person. This will give you peace of mind and help you to enjoy your life and your good fortune.