Protecting Your Nest Egg from the Vultures?

[ShokWaveRider]

I just got to thinking (Bet you wondered what the noise was. ) Just the other day I was involved in a very minor fender bender. No injuries and little damage.

I was stationary at a stop sign at a "T" junction, and was hit by a car turning left who cut the corner short and clipped me. He was pulling a trailer, and his trailer's mid section clipped my left hand front fender. I reversed up very quickly so as not to loose the entire fender and who knows what else. I called the police to make a traffic report, and was so sure they would list it as the other guy's fault. They did not. They said no fault could be proven, as the other guy insisted that I was moving forward. It was his word against mine. Even though logic stated that I would have not hit the middle of hit trailer if I was going forward, and there would have been a lot more damage. I guess the police are not very logical. So no fault at the scene, not worth the insurance claim. I did let them know but told them I did not want to put in a claim.

Well, as mentioned I got to thinking, if there was a lot of damage and personal injury, what is there to stop an aggressive lawyer from coming after my nest egg? With the state of the judicial system, who knows what the outcome would be.

What do you all do to make sure you are not devastated by such a disaster? Fault aside. As the question is really general. Even if it was your fault.

SWR

[REWahoo]

Auto liability insurance and umbrella policy.

[GTM]

Easy way . . buy an Umbrella policy which is insurance above the max limits on your auto liability.
Also adds liability to your homeowners and rental properties if any.

Policies are generally cheap,

ie. $2 million may cost $350 a year depending on the state you live in.
You can more probably purchase up to $10 million.

[smooch]

We recently bought an umbrella policy at the recommendation of the posters on this site. The price seemed very reasonable for more peace of mind.

[JPatrick]

Except where a fatality is involved, don't expect much from the police in the way of an investigation.* They just let the parties and insurance companies slug it out.
I'd think twice about not letting your insurance know about this as he may want to file a claim against you and insurance companies don't like to be surprised.
The umbrella is a good idea and don't wear your Rolex around dirtbags.

[SteveR]

The umbrella policy is a good idea. I have lower liability (state minimum only) on my cars and other toys but I carry an umbrella policy to cover the liability on all of the stuff in one policy. I can have higher limits and it costs less.

Just don't let anyone know you have it or they might try to sue you to get their hands on it.

[Finance Dave]

Quote:

Originally Posted by SteveR The umbrella policy is a good idea. I have lower liability (state minimum only) on my cars and other toys but I carry an umbrella policy to cover the liability on all of the stuff in one policy. I can have higher limits and it costs less. Just don't let anyone know you have it or they might try to sue you to get their hands on it.

My insurance carrier required that I increase my auto limits before they'd let me have an umbrella. I'm in Indiana and have Prudential.

[OAG]

Quote:

Originally Posted by Finance Dave My insurance carrier required that I increase my auto limits before they'd let me have an umbrella. I'm in Indiana and have Prudential.

The same here (USAA). When living in FL I took out a Umbrella policy and they required the Liability of the Home and Auto Policies be increased to, I think, $500K each before issuing the UP.

[kayelem]

I've had umbrella for a long time. I feel better, but luckily never had to use it.

My insurance guy convinced me that they would look at my employer (mega mega corp) and come after me regardless if I had $ or not. Probably true.

[LEX]

I have seen the following methods used. I do not endorse or advise any of them, but am posting them for entertainment only.

Be judgement proof. Rent your home and keep all your funds in suitcases in the closet. If you get sued, move, pack your suitcases, and leave no forwarding address. Another route is to have your accounts in a Tax ID number that has no cross reference to your social security number.

Have all your assets in the name of a trustee, such as an officer of a Nevada LLC. Its much harder to locate and execute a judgement.

A GCL umbrella will work, but it tends to reward a frivilous lawsuit. I know of several folks that prefer to have the plaintiff run an asset search prior to the suit and find no assets or real estate in your name. It has been suggested that this may actually prevent the suit, since a plaintiffs lawyer will be less likely to bring suit on a contingency basis if it appears from the asset search that you have nothing to attach in judgement.

[Martha]

I am with those who suggest the umbrella policy on top of your regular liability policy.

We have had several threads discussing whether having your assets in an "asset protection trust" or a "family limited partnership" is a good idea. I have said that they are not bullet proof ways to protect assets from creditors, but at least do put one more barrier between your assets and potential claims. It is something to think about anyway.

Knowing what assets are exempt from creditors in your state of residence is also helpful as you can maximize those exemptions.

When I was a bankruptcy trustee I saw over the years people file bankruptcy due to personal injury claims against them arising out of car accidents. Most of the time the claims were pretty small. The problem generally was that the debtor had no insurance or the bare minimum. Oddly, more often it was the debtor who had a personal injury claim against someone else and as a result of getting hurt, couldn't pay their bills. Sometimes I had to follow up on these claims. Generally I ended up settling with insurance companies.

[FinanceDude]

Quote:

Originally Posted by Martha I am with those who suggest the umbrella policy on top of your regular liability policy. We have had several threads discussing whether having your assets in an "asset protection trust" or a "family limited partnership" is a good idea. I have said that they are not bullet proof ways to protect assets from creditors, but at least do put one more barrier between your assets and potential claims. It is something to think about anyway. Knowing what assets are exempt from creditors in your state of residence is also helpful as you can maximize those exemptions. When I was a bankruptcy trustee I saw over the years people file bankruptcy due to personal injury claims against them arising out of car accidents. Most of the time the claims were pretty small. The problem generally was that the debtor had no insurance or the bare minimum. Oddly, more often it was the debtor who had a personal injury claim against someone else and as a result of getting hurt, couldn't pay their bills. Sometimes I had to follow up on these claims. Generally I ended up settling with insurance companies.

Martha......... NICE AVATAR!! I don't need any explanation.........

[unclemick]

Whatever happened to the 'Cook Island Trust' - I used to hear about in 'ancient days'. Did those guy's switch over to tourism or what.

Or - heh, heh - perhaps they sold the Island's and moved to Nigeria?

Heh, heh, heh, heh.

[farmerEd]

I've wondered the same thing...I have an umbrella policy but you never know when the limits of it will be reached and then they take your house and everything else....

What about an offshore bank account? I don't know much about them, but they are perfectly legal to have as long as you don't hide them from the IRS....I've often wondered, say you had most of your dough parked in an offshore account (which you claim on your tax return of course), if that is substantially all of your assets, and you got sued, how hard would it be for the claimant to even find out about it, and if you lost, how hard would it be for them to collect from you?

Can a US based lawyer lay claim to money in another country?

[Martha]

Quote:

Originally Posted by farmerEd I've wondered the same thing...I have an umbrella policy but you never know when the limits of it will be reached and then they take your house and everything else.... What about an offshore bank account? I don't know much about them, but they are perfectly legal to have as long as you don't hide them from the IRS....I've often wondered, say you had most of your dough parked in an offshore account (which you claim on your tax return of course), if that is substantially all of your assets, and you got sued, how hard would it be for the claimant to even find out about it, and if you lost, how hard would it be for them to collect from you? Can a US based lawyer lay claim to money in another country?

See my post #12 in this thread: http://early-retirement.org/forums/i...p?topic=2016.0

I have collected money as a bankruptcy trustee from off shore accounts before. I will find out about it from your tax returns. Or from someone telling on you.

[Mountain_Mike]

A little bit along the lines of Lex's post: Don't appear to be worth suing. Drive an older junker car, don't dress to the hilt, live in a modest home. Keep some of your assets in forms that are not easily traceable.

I may be wrong here, but I thought "retirement" accounts (401K, 457, 403b) and pensions untouchable in lawsuits? If I am incorrect, under what circumstances are they subject to being siezed?

[Martha]

Quote:

Originally Posted by Mountain_Mike I may be wrong here, but I thought "retirement" accounts (401K, 457, 403b) and pensions untouchable in lawsuits? If I am incorrect, under what circumstances are they subject to being siezed?

Under ERISA, tax qualified retirement plans are exempt from creditors, except for some minor exceptions, including qualified domestic relations orders and claims of the IRS for taxes. Most all pensions are protected under ERISA (like government and union pension plans). Nearly all 401(k)s have complete protection from creditors under ERISA, no matter how much money is in the plan. ( There may be some oddball 401(k)s that are not covered by ERISA. Also, there is some recent dispute concerning solo 401(k)s. Some people are now saying that there is no protection under ERISA because there are no employees and others are saying yes there is an employee--yourself.)

BTW, some courts have held that 403(b) plans are not protected under ERISA or only partially protected. About 10 years ago I settled a case where I claimed in a bankruptcy that someone's 403(b) plan was not exempt from creditors. Never went to trial but I got half the plan assets in the settlement. Can't recall whether 457 plans have as broad protections as a 401(k) plan.

An ERISA pension or an employer established 401(k) under ERISA are the "best" plans to have from a creditor protection standpoint.

[Da Nag]

Quote:

Originally Posted by Martha Nearly all 401(k)s have complete protection from creditors under ERISA, no matter how much money is in the plan.

Hmm...a rank amateur here, but this raises a question of great interest to me.

I'm fairly certain most, if not all of our ER income will be well protected. 401k, 401a, 457b and our pensions are pretty much untouchable in Washington State, from the little research I've done on the subject. Needless to say, this gives me significant warm fuzzies.

However, there seems to be some consensus that rolling over some/all of these plans to IRAs can make financial sense. And in our case, this would be required if we set up 72T withdrawals...an option I'd like to see remain on the table.

So, the above is the long-winded way of asking the following - do IRA rollovers jeopardize any protections I'd have otherwise?

[two4theroad]

My question is this: If I purchase an Umbrella policy for $1m to protect my assets, what keeps the vultures from suing for $2m to get my insurance co. to pay $1m and me to pay the other $1m from my hard earned retirement money?

Also as an aside,
I have been getting quotes for an umbrella policy and use USAA for my auto coverage. Their quote was exactly the same as my homeowners policy quote for all coverage options.
They both require $500,000 min liability on house and cars and $250,000 on boat. They are both quoting from the same carrier Is this normal?

[Gumby]

Quote:

Originally Posted by two4theroad My question is this: If I purchase an Umbrella policy for $1m to protect my assets, what keeps the vultures from suing for $2m to get my insurance co. to pay $1m and me to pay the other $1m from my hard earned retirement money? Also as an aside, I have been getting quotes for an umbrella policy and use USAA for my auto coverage. Their quote was exactly the same as my homeowners policy quote for all coverage options. They both require $500,000 min liability on house and cars and $250,000 on boat. They are both quoting from the same carrier Is this normal?

USAA also has umbrella policies. You should ask them for a quote.