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Old 05-19-2014, 04:35 AM   #21
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This is a great subject. And, no doubt a bigger threat than most want to realize. While the likelihood of a suit is low, the effects are great. A big part of the cost of a suit is paying the lawyers. With an umbrella, the insurance company will fit the bill. And that could save you tens of thousands alone. And, losing a suit could wipe you out.

We use an umbrella and a family LLC. Worked too damn hard for what we have and there are sharks everywhere. Titling assets is yet another way (variant of family LLC). And, BTW, umbrella policies are cheap. Just use a company that writes lots of them, like Chubb or PURE if you are looking at a $5 million + policy. Companies like State Farm don't write many higher end policies so they get more expensive.
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Old 05-19-2014, 06:41 AM   #22
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We've got most of our non-IRA assets in a revocable trust, including the house. We've got a $2 million Umbrella policy on top of that.
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Old 05-19-2014, 09:35 AM   #23
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Umbrella policy here as well. There was a thread on Bogleheads about sizing, and since I have just gone through this process, I'll share my thinking. Take your net worth, subtract any shielded assets (house, 401ks, etc) add a reasonable amount for future wages and size it that way. so if you make about 100k and you expect to have 20 more years of human capital add 20*$100,000 so another $2M.

I got some pushback on this, but the way I look at it is, this is the the maximum amount of money I will ever have, so if you take that away, I'll have nothing anyway. Yes, I'm aware that a larger suit would start to eat into my personal assets, but as I pointed out over there, at that point, an ELE (extinction level event) may become more likely than the lawsuit, lol!

I've also considered paying off my house even though I have a very low interest rate, as once i file the homestead papers, it is protected as well.

I have my two family in a realty trust. I've never looked at other forms of trusts for protection, probably something I should look into.
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Old 05-19-2014, 09:38 AM   #24
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We've got most of our non-IRA assets in a revocable trust, including the house. We've got a $2 million Umbrella policy on top of that.
How does your revocable trust provide asset protection? Things I am reading in this regard say since you retain control of assets in a revocable trust, they still are effectively your assets and still are exposed to creditors or other judgements. I am asking as we may be updating our estate planning with transition to retirement.
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Old 05-19-2014, 09:55 AM   #25
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How does your revocable trust provide asset protection? Things I am reading in this regard say since you retain control of assets in a revocable trust, they still are effectively your assets and still are exposed to creditors or other judgements. I am asking as we may be updating our estate planning with transition to retirement.
I'm pretty sure that's what the lawyer said but maybe I better check again.
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Old 05-19-2014, 01:05 PM   #26
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Although people often cite figuring like this as a guideline for sizing umbrella policies, this is not how it works. A $1 million umbrella policy does not protect your $1 million net worth and then pay any claims to protect your $1 million. The policy will pay claims up to the limit, then you are responsible for any overage. So your $1 million policy and $1 million net worth would both be used to pay a $2 million claim, leaving you with zero. Likewise claims over $2 million will wipe out your policy and your net worth and leave you owing any overage.

To size an umbrella policy, the relevant number is largest claim you want to protect against, not networth. Now people with very low net worth may not bother with umbrella protection because they are poor targets for litigation, there just isn't much there to win. But that doesn't mean as net worth grows you need a corresponding size umbrella policy. It means once your networth is substantial enough to be worth bothering to sue you, you need umbrella coverage to protect against the largest claim you could reasonably face.
Most actual cases I've read either involved gross negligence on the part of the insured or a high-risk situation such as owning a trampoline, having paintball games in the backyard, etc. So for a careful person without these unique risks, I guess the question is how much are the claims usually? And since the insurance company is hiring the lawyers, how much of a policy will be enough for them to put in sufficient resources to defend in a case, even if that policy is well below net worth?

Does the insurance company gather data on the individual in determining the cost of a policy? And is it really true that someone can sue for future wages?

Regarding the family LLC or titling, don't these affect ability to take tax deductions, or is it on non-personal property?
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Old 05-19-2014, 01:44 PM   #27
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Most actual cases I've read either involved gross negligence on the part of the insured or a high-risk situation such as owning a trampoline, having paintball games in the backyard, etc. So for a careful person without these unique risks, I guess the question is how much are the claims usually? And since the insurance company is hiring the lawyers, how much of a policy will be enough for them to put in sufficient resources to defend in a case, even if that policy is well below net worth?

Does the insurance company gather data on the individual in determining the cost of a policy? And is it really true that someone can sue for future wages?

Regarding the family LLC or titling, don't these affect ability to take tax deductions, or is it on non-personal property?
Just to give you an idea, my parents are people who live small and don't take a lot of risks. My mom was scammed by someone who intentionally stopped short so she would get rear-ended (sub 5 MPH impact). The plaintiff waited 2 years (max allowed before fling a case) to sue, then filed for back pain. The responding officer was probably in cahoots with the plaintiff. The insurance company lawyer told my parents that the plaintiff has a long track record of doing this stuff and they knew all about it. However, since she had the judge, doctor and cop in her pocket the insurer ended up settling a bogus claim for 800k. Thank God for that umbrella...
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Old 05-19-2014, 02:20 PM   #28
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How does your revocable trust provide asset protection? Things I am reading in this regard say since you retain control of assets in a revocable trust, they still are effectively your assets and still are exposed to creditors or other judgements. I am asking as we may be updating our estate planning with transition to retirement.
I'm no lawyer but our attorney told us unless it is IRREVOCABLE, it is fair game. Check with your attorney to be safe but do not assume anything is safe. After a suit is filed is the wrong time to find out.
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Old 05-19-2014, 02:24 PM   #29
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Most actual cases I've read either involved gross negligence on the part of the insured or a high-risk situation such as owning a trampoline, having paintball games in the backyard, etc. So for a careful person without these unique risks, I guess the question is how much are the claims usually? And since the insurance company is hiring the lawyers, how much of a policy will be enough for them to put in sufficient resources to defend in a case, even if that policy is well below net worth?

Does the insurance company gather data on the individual in determining the cost of a policy? And is it really true that someone can sue for future wages?

Regarding the family LLC or titling, don't these affect ability to take tax deductions, or is it on non-personal property?
If you own a house or drive a car you are at risk. Slip or fall on your property or auto accidents are well-known sources of suits.

Yes, the insurance company issues you a policy based on your risk: do you own a house, boat, motorcycle, rental property, etc. All those put you at risk. The more you own the greater the risk.

Yes, they can garner future wages. I think, (again, not an attorney) they can take up to 1/3 of earnings. . .

Point is: umbrella's are cheap and easy to get. Don't be penny wise and pound foolish. It is not the only way to protect assets but it is the easiest first step.
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Old 05-19-2014, 02:47 PM   #30
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...

To size an umbrella policy, the relevant number is largest claim you want to protect against, not networth. ...
Agree with this, and the other posters who said the same thing.

This is one of those things, if you do a search, that will be repeated over and over again advising to get an umbrella equal to your net worth. But it really makes no sense. A $1M policy and $1M net worth will be wiped out by a $2M lawsuit.

My guess is it's easier to sell with a simple 'rule of thumb' number, than to try to analyze what kind of lawsuit you might be hit with. Kind of like the rule of thumb that retirees will spend 80% of their working income.

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Old 05-19-2014, 04:09 PM   #31
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But it is only worthwhile to sue for what you can get. If someone without anything to their name and no substantial earnings injures me, it does me now good to file a multi-million lawsuit against them. Even if I prevail, there are no assets or income to collect from. You can't squeeze blood from a turnip.

It would not do a plaintiff any good to file a $20 million suit against me, but it would make all sorts of sense to file one against Bill Gates.

So once you have your NW and income potential covered plus a little room for estimating error, it would seem to me that additional umbrella coverage is wasted money.
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Old 05-19-2014, 04:10 PM   #32
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Why relate the umbrella coverage to net worth? The insurance policy doesn't cover your assets, it just covers liability up to the policy limit. Why not buy a $5 million policy, even if your assets are only $2 million. Or a $1 million policy? Shouldn't your policy be sized for the level of liability you feel you might need and for the level of protection you feel comfortable with?
+1 Well said. The umbrella covers liabilities up to the amount of the umbrella, regardless of yor assets or NW. Your assets or NW may make you a more appealing target for a lawsuit however.
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Old 05-19-2014, 04:37 PM   #33
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So it's not good to use net worth to determine umbrella size, but I still have no guidance on how much of an umbrella to get...

At what net worth do you think someone becomes a target for frivolous lawsuits? Should this include or exclude shielded assets?

For a low risk person (no trampoline, swimming pool, children, etc, but may own a house, car), how much should an umbrella be, given that it should not relate to net worth? Are all of you saying everyone should have $2 million policies? $3 mil? $5 mil?
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Old 05-19-2014, 04:39 PM   #34
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This is a great subject. And, no doubt a bigger threat than most want to realize. While the likelihood of a suit is low, the effects are great. A big part of the cost of a suit is paying the lawyers. With an umbrella, the insurance company will fit the bill. And that could save you tens of thousands alone. And, losing a suit could wipe you out.

We use an umbrella and a family LLC. Worked too damn hard for what we have and there are sharks everywhere. Titling assets is yet another way (variant of family LLC). And, BTW, umbrella policies are cheap. Just use a company that writes lots of them, like Chubb or PURE if you are looking at a $5 million + policy. Companies like State Farm don't write many higher end policies so they get more expensive.
I have not yet utilized the areas mentioned (in bold original quote), but have looked into it in the past. Advise one to get good local legal help if it is an area of interest. A good estate planning/asset protection lawyer familiar with Trusts/LLCs in your area should be able to set up adequate asset protection. I believe a Qualified Personal Residence Trust (irrevocable) keeps a residence out of harms way. Since it's irrevocable, believe one can have the beneficiary of the trust be an LLC to maintain control if sold in the future. I've read that a Family Savings LLC leaves you in control of your assets as the general partner(s), and your children as limited partners (to help avoid any lawsuit issues down the road). I believe this also allows transfer of assets to your limited partners at the then current value (for estate planning/tax purposes), while still maintaining control and getting an income from them. Other personal property (i.e. income properties) I believe should be held in separate LLCs to avoid possible legal chaining of ownership. IIRC, you can also strip the equity out of them legally so if a person wins a slip and fall, there's not much to obtain. The lawyer representing the slip and fall opportunist will first determine how deep and accessible are your pockets (easily done these days) before committing to represent him. He usually doesn't get paid until it's settled and degree of difficulty of obtaining funds is a huge determining factor here.

I originally got my information from a lawyer out of California who still offers information for asset protection for physicians and high-risk business owners on his website for free, but again - you'd need a local lawyer familiar with your state laws to properly set up your LLC. As mentioned in previous responses, umbrella policies offer protection up to the limit of the policy, but do not protect you from possibly changing places economically with someone due to an unfortunate circumstance (kind of makes you more attractive). Protection of assets should be successful utilizing LLCs and QPRTs.
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Your Asset protection Plan?
Old 05-19-2014, 04:51 PM   #35
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Your Asset protection Plan?

An advantage I see of having umbrella at least as much as your net worth is the insurance company will be fighting to keep the same amount as you have at risk. They do not want to lose their own $1 million so will put up the appropriate amount of fight.

But your $1 million is obviously not protected just by having the umbrella of equal size.
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Old 05-19-2014, 05:25 PM   #36
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I have not yet utilized the areas mentioned (in bold original quote), but have looked into it in the past. Advise one to get good local legal help if it is an area of interest. A good estate planning/asset protection lawyer familiar with Trusts/LLCs in your area should be able to set up adequate asset protection. I believe a Qualified Personal Residence Trust (irrevocable) keeps a residence out of harms way. Since it's irrevocable, believe one can have the beneficiary of the trust be an LLC to maintain control if sold in the future. I've read that a Family Savings LLC leaves you in control of your assets as the general partner(s), and your children as limited partners (to help avoid any lawsuit issues down the road). I believe this also allows transfer of assets to your limited partners at the then current value (for estate planning/tax purposes), while still maintaining control and getting an income from them. Other personal property (i.e. income properties) I believe should be held in separate LLCs to avoid possible legal chaining of ownership. IIRC, you can also strip the equity out of them legally so if a person wins a slip and fall, there's not much to obtain. The lawyer representing the slip and fall opportunist will first determine how deep and accessible are your pockets (easily done these days) before committing to represent him. He usually doesn't get paid until it's settled and degree of difficulty of obtaining funds is a huge determining factor here.

I originally got my information from a lawyer out of California who still offers information for asset protection for physicians and high-risk business owners on his website for free, but again - you'd need a local lawyer familiar with your state laws to properly set up your LLC. As mentioned in previous responses, umbrella policies offer protection up to the limit of the policy, but do not protect you from possibly changing places economically with someone due to an unfortunate circumstance (kind of makes you more attractive). Protection of assets should be successful utilizing LLCs and QPRTs.
As to the house issue it depends greatly on the state you live in. In Tx houses are fully protected from creditors except for explicit mortgage events. So you would not need to go the QPRT. In addition SS can't be attached except by the feds, as well as 401ks.
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Old 05-19-2014, 06:00 PM   #37
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If you are an average person, I would think your largest risk would be a car accident. A car accident in which one or more people die may yield a large lawsuit.

Determining how large an Umbrella Policy to get is a challenge. I guess you just have to pick a reasonable number and go with it. Maybe $2M?
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Old 05-19-2014, 06:11 PM   #38
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I have not yet utilized the areas mentioned (in bold original quote), but have looked into it in the past. Advise one to get good local legal help if it is an area of interest. A good estate planning/asset protection lawyer familiar with Trusts/LLCs in your area should be able to set up adequate asset protection. I believe a Qualified Personal Residence Trust (irrevocable) keeps a residence out of harms way. Since it's irrevocable, believe one can have the beneficiary of the trust be an LLC to maintain control if sold in the future. I've read that a Family Savings LLC leaves you in control of your assets as the general partner(s), and your children as limited partners (to help avoid any lawsuit issues down the road). I believe this also allows transfer of assets to your limited partners at the then current value (for estate planning/tax purposes), while still maintaining control and getting an income from them. Other personal property (i.e. income properties) I believe should be held in separate LLCs to avoid possible legal chaining of ownership. IIRC, you can also strip the equity out of them legally so if a person wins a slip and fall, there's not much to obtain. The lawyer representing the slip and fall opportunist will first determine how deep and accessible are your pockets (easily done these days) before committing to represent him. He usually doesn't get paid until it's settled and degree of difficulty of obtaining funds is a huge determining factor here.

I originally got my information from a lawyer out of California who still offers information for asset protection for physicians and high-risk business owners on his website for free, but again - you'd need a local lawyer familiar with your state laws to properly set up your LLC. As mentioned in previous responses, umbrella policies offer protection up to the limit of the policy, but do not protect you from possibly changing places economically with someone due to an unfortunate circumstance (kind of makes you more attractive). Protection of assets should be successful utilizing LLCs and QPRTs.
+1...very similar info we got from our attorney. States do vary somewhat as has been noted regarding home ownership and asset protection.

For me, the number is not about net worth. If you have a policy for $2 million but lose $3 million due to accidental death you are out $1 million. There is no number to cover all what-ifs. I just picked a number that covers most.
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Old 05-19-2014, 06:18 PM   #39
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We left money in our old employer 401Ks. We rolled most of our IRAs into the 401Ks while we were still working. They are asset protected by the ERISA anti-alienation clause -

http://www.nytimes.com/2009/04/02/bu.../02CREDIT.html

We keep a mortgage and HELOC on the house since California doesn't have much in the way of asset protection for personal residences.

We have a homestead exemption for the house (not much in California), LLCs for the businesses, business insurance and umbrella insurance.

We took the pensions as annuities in part so if we ever got sued or developed dementia and lost our money due to some scam, we'd still have pension and SS money coming in.

If we both die, the money for the kids goes into a trust and gets doled out to them in dribs and drabs over time.

We took a class on how to be white water raft guides once so we could be guides and invite our friends as the paddle crew, but dropped that idea as soon as they got to the liability part. Apparently that would have been worse than having a trampoline alongside a snake pit next to an ungated swimming pool in the back yard.
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Old 05-19-2014, 06:26 PM   #40
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I don't think "allow" is the correct word here. How about sh*t happens whether we like it or not, expect it or not, allow it or not, ....


The below link has some relevant data. In sum, make yourself unattractive to law suit by having large mortgage, line of credit, ...

http://www.assetprotectionattorneys...._Lawsuits.aspx
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