Let’s face it – we live in a litigious society. Protecting the assets you’ve worked your whole life for takes proper planning and professional expertise. Individuals and businesses that may be considered high-risk for litigation should start planning sooner rather than later to limit exposure. Some asset protection strategies offer full protection against liability, while others seek to mitigate risks or make it difficult for creditors to reach assets. There are many, often simple, conventional strategies to consider while evaluating your assets’ vulnerability. Consider the following when discussing asset protection with your trusted advisor:
It is important to identify what kind of risk you are trying to mitigate. If you are concerned about legal claims, first consider whether those are likely to be tort liability, creditor claims or marital/family property/support issues. Anyone with significant accumulation of wealth should purchase an umbrella liability policy. These are inexpensive and add levels of financial protection beyond your current automobile and homeowner’s policies. Insurance industry sources estimate that the majority of claims are settled within liability insurance policy limits, sparing the insured’s assets all together.
Ownership of Assets
How assets are held is another critical factor. State and Federal laws provide protection for certain assets. Entireties property is important for married individuals. Certain kinds of property, if properly titled in the name of a husband and wife together, cannot be reached by the creditors of one spouse alone. Entireties properties may include any real estate in Michigan, bonds, certificates of stock, mortgages, promissory notes, debentures and membership interests in limited liability companies. However, joint bank accounts and brokerage accounts are not protected.
Retirement assets have extensive protection. Federal Bankruptcy laws offer 100% protection for contributions to ERISA plans. That covers virtually all employer-sponsored defined contribution plans and pensions. Personal retirement vehicles, notably IRAs, enjoy considerable protection as well. However, the amount of traditional IRA and Roth IRA assets protected is limited to $1,283,025 (adjusted for inflation every three years). The caveat is once funds are withdrawn, even as a result of Required Minimum Distributions (RMDs), they become available for creditors to satisfy their claims. Also, the Supreme Court has ruled that this protection does not extend to beneficiaries who inherit retirement assets.
All states have enacted statutes to define assets that are excluded from attachment to satisfy creditor claims. One of the most important assets protected by the Michigan exemption laws is the debtor's residence. Under the Michigan exemption system, each homeowner and his or her dependents may exempt up to $38,225 of interest in property covered by the homestead exemption. If the homeowner is age 65 or older or is disabled, the exemption amount increases to $57,350. In addition to your homestead, Michigan exemption laws also protect some of your most valuable personal property. Some of the most important exemptions are as follows:
- Up to $3,525 in equity for a single automobile
- All clothing, other than furs, and family pictures
- Up to $650 in computer accessories
- All health, life or casualty insurance proceeds
- Up to $2,550 worth of tools, stock or materials that are necessary to carry on a trade, profession or business
- All workers' compensation, veterans', unemployment, welfare and other public benefits
Protecting others is a common desire. Whether those individuals are minors, have personal financial challenges, disabilities or substance abuse issues, assets for their future well-being can be protected. In this regard, trusts have been the effective, traditional tool allowing the grantor to tailor restrictions and controls into the future. Highly specialized supplemental needs trusts can protect a beneficiary’s eligibility for public benefits, while adding to their comfort and lifestyle. Trusts are often used to postpone a beneficiary’s access to funds to avoid guardianship, or to protect the immature, improvident or indolent.
Discussing your options with a Chemical Bank Wealth Management professional will help you decide what asset protection strategies are the best suited for you.