Asset Protection’s first line of defense

What is asset protection? According to Investopedia, asset protection is “The concept of and strategies for guarding one's wealth. Asset protection is a type of planning intended to protect one's assets from creditor claims. Individuals and business entities use asset protection techniques to limit creditors' access to certain valuable assets, while operating within the bounds of debtor-creditor law.”

Asset protection is designed to protect one’s assets from excessive litigation awards. One case I recall involved a business owner in Texas who while walking his dog accidentally caused a bicyclist to fall and break her arm. This person sued the business owner for something like seven million dollars! While anyone can be sued, business owners and physicians seem to have a target painted on their backs.

The first line of defense in asset protection is something known as Umbrella Liability Insurance. This is liability insurance above and beyond what your auto and homeowner liability covers. It is typically offered by your homeowner policy carrier. The good news is it is relatively inexpensive. A $1 million umbrella policy will usually cost under $1000 per year.

So why get this type of insurance? Because it is the low-hanging fruit. If you are at fault for something and you have assets, rest assured some attorney will try to go after your assets. Often, the very existence of umbrella insurance is enough to keep the plaintiff’s attorneys from going through the effort of trying to get your other assets.

Obviously, this type of planning requires a well-coordinated team including your wealth manager, your accountant, and especially an estate attorney well-versed in asset protection strategies.