You may think the importance of estate planning is limited to protecting your loved ones and minimizing taxes. But a properly executed estate plan is also about protecting the estate’s assets from lawsuits and creditors as well.
It would be awful to spend all that time planning your estate only to have a lawsuit or creditor come along and destroy your good intentions and hard work.
Lawsuits are a real problem
Some are under the mistaken belief that only doctors and lawyers get sued. The fact of the matter is that anyone can be sued for anything.
For example, if a child was injured on your property while trick or treating, their parents could sue you for their child’s medical bills and pain and suffering, even if you had nothing to do with their injury.
Now, of course, you have property insurance, which should cover you. But, what happens if the insurance is not enough? What happens if you rear-end a Maybach or Lamborghini? Do you have enough insurance to cover every eventuality? The answer is likely, no.
If the only Michigan property you own is the family home, then you need to claim your homestead on it. This will provide that property with protection from creditors and lawsuits.
The limits vary depending on your state, but every state provides some form of homestead protection for your family home. If you have not claimed your homestead, your estate planning attorney can help you set it up.
Annuities and life insurance
Annuity and life insurance have similar state-level protections that vary by state. Though, unless there is a cash surrender value for these instruments, there is nothing to attach or garnish by creditors, especially as the beneficiary is not you.
You can also move your assets to a trust to protect them from lawsuits and creditors. The assets are protected because you no longer own them.
For example, if you already know that you are going to transfer some assets or income to beneficiaries and you no longer need them, then transferring them now to a trust can protect them. In addition, these types of transfers can help you qualify for state and federal benefits.
This must be done carefully and, preferably, by a lawyer to ensure they are done correctly.