Protecting your home. Protecting your home against lawsuit may be one of the biggest challenges. Most couples hold title to their home under ‘joint tenants with rights of survivorship’. This means that if one spouse dies, the home automatically transfers to the surviving spouse without going through probate. Yes, it’s simple but exposes what, for most people, is their most valuable asset to lawsuit. To complicate matters, most states provide homeowners a ‘Homestead Exemption’ which significantly reduces property taxes. If you were to transfer title into a trust, or LLC, you’d likely no longer be eligible for the exemption…a high price to pay over the life of your home. Most mortgages also have a ‘due on sale’ clause that requires you pay off your mortgage should you transfer title out of your name. There are some possible strategies:
- If you are in an occupation considered ‘risky’ from a lawsuit perspective such as a physician, you could transfer title to your spouse. If you receive a judgment against you that exceeds your insurance limits, this strategy may provide the protection you need. One weakness is that there is no protection against judgments directly against your spouse.
- You could take out a large loan against your home and invest the proceeds (your equity) in one or more of the strategies we’ve already discussed. In effect, your home is now much less valuable or a target of would-be creditors. The weakness here is that you must make large mortgage payments.
- In my book, J.K. Lasser’s New Rules for Estate & Tax Planning, I discuss a little-know titling for married couples called, “Cross Contingent Remainder Deeds”, available in some states that prevents creditors from forcing the sale of your home unless the judgment is against both spouses.
We’ve covered a lot of ground in this series and it would be easy to get overwhelmed and do nothing. As a result, at some time in the future, you may find yourself in a situation in which you wish you had taken action. Consider approaching asset protection one of two ways:
View it as a ‘process’ whereby you create ‘building blocks’ of asset protection. Start by listing all of your assets and liabilities on a piece of paper. For a form, visit the Resource Center at www.welchgroup.com; click on ‘Links’, then ‘Asset/Liability Review’. Decide what assets you feel need protecting now and begin with the simplest and least expensive strategy. As you acquire additional assets, you’ll revise and update your strategy periodically.
Work with a professional who has expertise in the area of asset protection. There are a number of attorneys who are skilled in this area as well as some financial advisors and accountants.
Most important is that you implement a plan customized to your situation BEFORE you realize you need one.