Top 5 Fundamentals for Asset Protection: Part 5

Asset Protection, Part 5

I am often asked for legal advice on asset protection topics. Though there are myriads of ways to protect assets, in this series of articles I am discussing my “Top 5 Fundamentals for Asset Protection”. Most of these topics fit for people who have some assets, but some topics fit everyone, yes even the person who owns nothing. What does that person have to protect?  Wages. We do not need to spend money on every form of asset protection. Some of the suggestions in this series are free or nearly free.

Part 1 discusses acting in an ethical and conscientious manner.

Part 2 discusses insurance for asset protection.

Part 3 discusses business entities for asset protection.

Part 4 discusses domestic asset protection trusts.

Asset Protection Through Nest Eggs

Nest eggs, a funny little term used in asset protection plans, are a tool that one can legally use to squirrel away assets so they cannot be touched. Each nest egg has a compelling social reason for government protection. These nest eggs are Life Insurance, Homestead Exemptions, and Qualified Retirement Accounts. OJ Simpson retains several million dollars in his nest eggs. These proved untouchable by the Brown and Goldman families.

Life Insurance

US laws protect life insurance from creditors. In Utah, life insurance owned by a person for more than one year, and unexpired during that term, provides protection for the cash value and death benefit. Sometimes the payments made to the insurance during that year are not protected. Why would the state want to offer life insurance as an asset protection device? Personally, I believe the insurance lobby successfully obtained this exception purely for profits. Despite the profit motive, life insurance also protects others who, like children or a spouse, rely on financial or other help from the insured. No one wishes homeless or destitution on children, especially when tragedy strikes. Thus as an asset protection device, an insurance policy with cash value  may be used as a creditor proof bank account.

Homestead Exemption

Homestead exemptions are just what one would imagine. They protect a certain value of a family’s or individual’s homestead from their creditors. The law permits creditors, once they have obtained a judgment, to attach a lien to a home belonging to the debtor. If the debtor does not pay, the creditor may even foreclose on the home. Utah law provides asset protection of $30,000 to an individual and up to $60,000 per family on their home. Creditors must pay at least $30,000 and up to $60,000 to the family when the creditor forecloses. Thus if there is not enough equity in the home, the creditor would be unwise to foreclose, and if there is, the family will at least have some money with which to purchase another residence. This exemption, like life insurance, prevents a family from homelessness and destitution.

Qualified Retirement Accounts

Qualified retirement accounts like 401k’s and IRA’s are also generally exempt from creditors. This exemption helps prevent one from destitution in old age after they no longer work. Many people, especially small business owners, question the returns they obtain from their retirement accounts. They feel that there are better places for their money. Even though there may be places where one could obtain better returns on their investment, qualified retirement accounts make great asset protection devices.

Whatever you are thinking your asset protection strategies may be, its always a good idea to have some cash squirreled away for a rainy day. The asset protection by nest eggs is a great way to do it.