ERE and Legal, Financial Liability

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mikeBOS
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Post by mikeBOS »

It has occurred to me in the past that most asset-protection laws are constructed to protect the more typical wage-slave type lifestyle and they kind of hang the high-asset, low income, ERE types out to dry.
By asset-protection I mean protections in case you are ever sued, or someone is trying to collect a debt against you, so that your home can't be taken from you, your pension/401k/certain protected retirement accounts can't be taken from you and assets like "college-savings accounts" can't be touched.
The idea of the laws is so that people aren't thrown out to the street as the result of a judgment. Also, I think, to limit the number of lawsuits going on. If you knew you could take your neighbor's $200k house and $400k 401k account after he accidentally ran you over with his car, you'd be more likely to sue, but since those are protected and his only unprotected assets are likely a weekend fishing boat and his collection of rusted out cars, you wouldn't bother taking the time to sue, even though you'd win.
There are some things we can do, but they all have costs and trade-offs. Putting as much of our investments in IRA's as we can seems like a no-brainer. Some states protect annuities, which tend to be rip-offs, but could be worth it. Switzerland requires that any annuities bought in its country cannot be collected on to cover a judgment/debt unless the creditor goes through the Swiss court system, which essentially makes the process far too costly for collecting anything short of a multi-million-dollar judgment.
There are the umbrella, liability policies you can get, but frankly, that would seem to me to have the effect of painting a big bulls-eye on yourself.
One of the best things I think you could do is just to keep your mouth shut and keep a low profile. Keep the modest house, used car (if any at all), and hope people think you're scraping by so no one would even think to bother to sue you.
My assets still aren't quite high enough to take any of these steps yet. If I lost everything today I'd just shrug it off and start saving up again. But I do think, when I'm living completely off my investments, and I've made it difficult for myself to get back into the work force, I would be wise to take a combination of steps in order to protect against liabilities. I'd hate for one slip-and-fall or one bad car accident or one punch in the face to a jerk who deserves it, to cost me my income stream. Plus, it'd help me sleep at night.
Anyone else given any thought to asset protection? Any fears of losing everything in a lawsuit and having to start all over?


LoveSherpa
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Post by LoveSherpa »

I have thought about this a lot too. I always reach the conclusion that umbrella insurance policies are the way to go. Why would this be like painting a bulls-eye on myself? I wouldn't advertise this...?
Besides, if you take out a million dollar policy ($1,200 bucks a year?), I'm sure the insurance companies will assign a decent lawyer since a good chunk of their change is on the line.
But this solution doesn't sound very compatible with the ERE lifestyle of lowering expenses.


photoguy
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Post by photoguy »

Agree on getting umbrella insurance. The premiums are not very much and I don't see how it would be "painting a bulls-eye" on yourself. Umbrella insurance should be nowhere near $1200/year -- I think I am paying like a quarter of that.
I think being retired may be a much bigger bullseye if anybody knows about it, because many people assume that you need millions to do so early.


mikeBOS
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Post by mikeBOS »

I think about a million dollars in coverage in an umbrella policy runs less than $200/year for most people.
The reason it's a bulls-eye is insurance policies can typically be discovered through legal proceedings before a case really even begins. One of the first steps in being sued will be answering written questions about your insurance policies to see if they even want to proceed with the case. If there's no insurance to pay out, they would likely just drop everything right there, unless they have reason to believe you have another way to pay the judgment. Most of these lawyers work on contingency fees and "30% of zero is zero", they'll just drop the case and move onto the next one. It's like any kind of security, you don't need to make yourself 100% secure, you just need to be more secure than the next potential victim, because they will always go after the low-hanging fruit.
It's true the liability insurance company would handle everything. But just having the policy makes it more likely the case will go forward in the first place. Then you could potentially get a settlement or judgment that's greater than your policy limit, so then your assets will be looked at to settle the judgment. The $1M policy makes it attractive enough for the plaintiff to go forward with a whole trial/settlement negotiations. That's the hard work, and when that's all done, and they have their judgment, it's then just a matter of procedure of going through the steps to collect whatever other assets you might have to satisfy any judgment in excess of $1M.
After reading about it all morning I'm starting to think a wise step for an ERE-er (in the U.S.) might be to visit an attorney who specializes in asset protection when the time comes to leave work or when you have assets high enough that you couldn't stomach starting over from scratch. There are ways to protect things, but they're different from the typical protections the average consumer/debtor, who doesn't have large liquid savings outside of retirement accounts, relies on.
@photoguy I agree being "retired" could be a big bullseye as well. So it might be better to just be "unemployed" or someone who owns a really slow business or something that would make people think you were poor and scraping by rather than living off millions you've stashed away.


44deagle
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Post by 44deagle »

Open a home equity line of credit for as much as possible, make sure all your money is in liquid assets. If someone tries to sue you and it looks like you will lose, convert all assets and use home equity line of credit into physical gold and silver.


Mr. Overlord
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Post by Mr. Overlord »

If you're married, many states treat marital assets as untouchable/protected property so creditors of either spouse cannot touch those marital assets. There are rules though about turning your property into "marital property"; you can't just be married and have joint bank accounts. Best thing to do would be to have a lawyers who specializes in this to help you get the law to treat your assets as marital property.
Edit: Not sure if a creditor of both spouses could reach those assets, but it's probably unlikely that someone will have a legal claim against both spouses.


mikeBOS
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Post by mikeBOS »

@44deagle Your primary residence is usually protected anyway, so I'm not sure taking out a HELOC would do much. What I'm mostly concerned about is a non-retirement brokerage account that is up in the hundreds of thousands of dollars.
Though having things that are small, valuable and difficult to find, like precious metals in a secret safe deposit box, isn't too bad an idea to diversify, though technically they could still be taken unless you swear under oath to their non-existence. ;-)


KevinW
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Post by KevinW »

Suppose for the sake of discussion that there are two kinds of lawsuits, those with merit, and those that are frivolous.
For the liability of being sued with merit, "an ounce of prevention is worth a pound of cure." If you are responsible and don't put others at risk then I think you should be fine. Follow safety procedures and don't engage in behavior that infringes on others -- driving fast, dangerous animals, fire hazards, etc. Also if someone has a legitimate bone to pick with you, settle it quickly before it escalates.
Basically follow the golden rule. And I might add, by golden-rule reasoning I'm not sure how I feel about "asset protection" vs. lawsuits with merit. Imagine you're in the position of having been permanently injured by some jerk; do you want to hear that there's no way to collect from them?
For bogus frivolous lawsuits, I think the best thing is to maintain a low profile. I think Jacob is right and you should say you're a "writer" or something instead of "independently wealthy." If you're really worried about it then research what you can do with IRAs etc. and insurance. Maybe arrange your work life so you are less likely to be sued. A behind-the-scenes employee in a large organization is less likely to be personally sued than a freelancer who deals directly with the health and well being of clients. Also investing in securities is less likely to get you sued than investing directly in real estate or a small business.


HSpencer
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Post by HSpencer »

It is always possible to get into something that works out bad, like a lawsuit. I have thought often about being sued, and it has ingrained a specific mode of watching my back at all times.

Having run four apartment complexes, and having to comply with myriads of government regulations, I am especially sensitive to personal liabilities. The rise in the sidewalk my tenant tripped over, was only a 1/2" high and not the 1" high which ADA confirms as unacceptable. Photos, testimonies, and case closed, ruled in favor of the Landlord. This type thing applies both in business and in personal life. It is the nature of the beast.

One can carry a very good homeowners insurance, and the requirements noted in liability policies on vehicles, boats and trailers. Still, you can get caught with your proverbial pants down.

Like someone said above, blend into the woodwork. Appear as though there is nothing to gain from you through a lawsuit. Shelter your assets where possible from such. You must be proven in neglect on an issue before you can be successfully sued. Just don't allow that to happen if at all possible.

You hear people say they will sue someone for everything they have. Remember, it depends on the other guy winning the case, before they can do that. Keep in mind the "actions of a reasonable person" tend to stand up in court.


Mo
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Post by Mo »

FWIW, I've been sued. I carry umbrella liability insurance. I've used the services of asset protection attorneys, and still do. I've spent hundreds hours researching this topic myself.
I agree that keeping a low profile is a good idea, but it isn't always sufficient. When I was sued, I drove a 17 year old car, with its front bumper held on with duct tape. I earned under $50k per year. I lived in a 700sf 1BR apt. I had a net worth (in conventional terms) of negative $120k.
So, why would I be sued? Because I had two things that money could be extracted from: 1)insurance 2) future earnings. In the US, the overwhelming majority of lawsuits are about forcibly transferring money or assets from one party to another. If there is no reasonable way to produce such a transfer, a lawsuit is very unlikely.
In my experience, in the US, most asset protection plans need to be tailored to the state (or states) involved. In some states your assets can be seized because of a judgment against your spouse. In most states your wages can be garnished. Depending on the state, your house may be your best protection, or it might be your biggest liability. Annuities and life insurance may offer significant benefit, or no benefit at all.


Mo
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Post by Mo »

@44deagle, Does that really work? I pay $400-500/hr to asset protection attorneys, and none of them have suggested this to me.
I imagine a scenario like this: You are sued by an attorney who knows that you own a $200k house that he can seize to satisfy a judgment. He knows this because property records are public records in your area. He also has had a professional do research into your other assets and liabilities before filing the claim. So, on the day the claim was filed, he has a pretty good idea what you have and don't have.
When the judgment is rendered you now owe the plaintiff $200k. You claim you have no money, and that you have borrowed against your house. Your records are reviewed. It's apparent that you took out a $100k+ HELOC a few months prior to the judgment, but well after the claim was filed. So, you get dragged back into court, and you get asked what happened to that $100k+, what do you say at that point?


M
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Post by M »

@Mo
You say:
"When I knew I was getting sued, I got so depressed that I decided to take out a heloc and go to Vegas for the weekend. While at Vegas I got really drunk and don't recall exactly what happen to all the money."


M
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Post by M »

On a more serious note, I wonder what the judge would say if instead of buying gold and silver you just gave the money to a friend or trusted close relative as a "gift" shortly after getting sued.
I wouldn't think the judge would have the authority to extend the lawsuit out to your friend/relative and take the money from them in order to pay for a judgment against you, would they?


Mo
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Post by Mo »

@M, I would expect that the money could be seized from your friend. My understanding is that such an occurrence could qualify as a fraudulent transfer, and thus could be reversed. Also, you'd have to pay a gift tax on the 'gift' you give.


dragoncar
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Post by dragoncar »

Mo: Yes, beneficiaries of Bernie Madoff have recently learned how "clawback" works. Best to make gifts before you are sued.
None of your attorneys have suggested cashing in home equity for gold because the implication is then that you would lie to the court about your assets. Even an unscrupulous lawyer would think twice about this course of action, as you'd be turning a civil affair into potential jail time.
M: Is a jury going to believe you blew everything in Vegas? Considering Vegas is so heavily monitored, probably not. And if you succeed? Congratulations, you've stiffed someone you've injured. As a taxpayer, I'll end up taking care of them for you.


Maus
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Post by Maus »

Mo is correct. The type of transfer contemplated by M, or the type of asset transfer suggested by 44deagle, would be considered fraudulent and reversed by court order. It might also expose you to criminal prosecution. The courts have broad power to force a party to disgorge fraudulently retained or transferred assets. Indeed, in a recent case, the bankruptcy court required an innocent crime victim to return thousands of dollars of restitition paid by a criminal defendant who filed for bankruptcy after convincing the criminal court to terminate his probation early on the strength of the restitution payment and some community service hours. The bankruptcy court concluded that the restitution funds were eligible for clawback because they were transferred within 90 days of the filing.
A lawsuit can be defended against, particularly if it is a frivolous money hunt. A motivated person of reasonable intelligence can even successfully represent himself or herself, if willing to put in the time to learn the legal process. But the old adage "You can't fight city hall" is mostly true. The power of the state to confiscate -- backed by the force of arms -- is hard to resist without sacrificing blood and toil.


M
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Post by M »

@dragoncar - Of course, I would only do something like that if it was a frivolous lawsuit where people were being unethical just to try and steal my assets because I have money and they do not.
If I actually cause damage to someone or something as a result of my actions or negligence, then I would pay for the damages that I caused.
However - the court system isn't perfect, and if someone is going to use unethical means to attack me legally then I consider it to be within my right to use unethical means to defend against said attack.
Kind of like how I would never dream of physically assaulting someone, but if someone were trying to take my life I wouldn't hesitate to kill them, not even for a second.
But of course, that's just my feelings about it. To each their own.


Mo
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Post by Mo »

@mikeBOS, I don't know any great, easy way to protect a large brokerage acct in the US that you have ready access to and control over. Most of what I have done to protect myself involves using various ERISA accts, liability insurance, permanent life insurance, transferred some things to my wife, and structured my home ownership (or now lack thereof) and career choices in an attempt to reduce what might be able to be seized if a judgment were made against me in the future. Thankfully, I'm not involved in any claims currently.
In about a month I'm moving to Florida, and my plan will again change, as Florida offers considerable homestead protection and no wage garnishing for the head of a household.
In terms of liability, things like the action described in the link below are what cause me to try to reduce what might be able to be seized.

http://www.ama-assn.org/amednews/2009/0 ... ca0105.htm
I'm not trying to argue that the doctor is right or wrong here. It's just that I can see how one might get into a position like this. Also, realize that his insurance won't help him-- it's not medical malpractice, it's discrimination. Things like discrimination and harassment (sexual or otherwise) have no insurance coverage.


Mo
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Post by Mo »

@mikeBOS, if you're still interested, a 529 plan might be an option, depending on your state, even if you don't have kids. There is a penalty for the donor reclaiming his contribution, but it doesn't seem too bad to me. You have to pay for the protection, one way or the other.


chenda
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Re: ERE and Legal, Financial Liability

Post by chenda »

Pensions provide good income protection. They are usually a protected asset in the event of bankruptcy, you are tightly restricted in terms of how much capital you can withdraw and are insured by the government up to a certain amount. In the event of becoming a senile spendthrift in old age you still have guaranteed income for life (pension income can be docked by creditors but the asset itself is protected) Only downside no one can inherit the asset, but that won't be your problem.

I want to explore trusts further and how that could protect your primary residence from either self inflicted folly and/or being taken advantage of by vultures.

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