Another thought provoking article by Ernie McDaniel
We don't always get what we deserve. You've known morally or mentally challenged people, or just danged lazy, who always seem to come out smelling like a rose. You've known smart and honest and hardworking people who just can't seem to get a break. So, not every person who has a debt problem brought it upon himself. Sometimes it's a lawsuit that causes the difficulty, sometimes overwhelming medical bills. Sometimes it's a partner or spouse, sometimes a worthwhile business venture turned nasty. No matter what the cause, it's good to know how to protect your assets.
As with so many other aspects of life though, the most effective action you can take is well in advance of the situation developing. And please don't assume you'll never have a problem. As they say, bad things happen to good people. If you drive, if you own real estate, if you are in business, if you are married, then there may be a real potential threat to your wealth. In other words, nearly anyone might be wise to plan his investments and assets with creditor protection in mind. If you wait until a threat is looming, you may have waited too long.
So what steps might you take? One possibility is to place certain assets into a limited liability company (LLC). LLCs may be particularly useful if you own investment real estate; for example, rent houses or commercial property or land. Of course, you should consult with a properly qualified attorney in order to make your decision as to the appropriateness of an LLC for your circumstances. (By the way, I am not an attorney.)
Any money in retirement plans such as IRA's and 401(k)'s is also protected from creditors. This category includes 403(b)'s available to teachers and hospital workers. Tax-deductible contributions and potential tax-deferred growth may be additional advantages of these programs. There are varying limitations as to how much can be placed in them each year, and the maximum is in fact zero for anyone no longer working.
What about CD's and other money in the bank or credit union? Normally, these are not protected against creditors. What about stocks and bonds? Not protected either. What investments might be used instead of these? One of the many nice things about living in Louisiana is that it has some of the strongest laws in the country protecting fixed annuities, a category which includes both the traditional and indexed varieties. Additionally, these products provide income tax deferral, an advantage in itself. There are no legal maximums on contributions to these plans. Generally, they are long-term vehicles and may not be appropriate for short-term savings.
Another class of asset protected from creditors' claims is life insurance cash values. While some people are not inclined to place a great deal of money in life insurance because of the inherent expense, there are plans that may build value and therefore may be worth investigating as viable tools for creditor protection, especially when the life insurance death benefit is needed. (Many people are underinsured.)
In summary, it is wise to plan against the unexpected possibility of a jumbo suit or other cause of catastrophic debt. Much of your wealth may be protected from creditors' claims, but only if you take steps before a threat is imminent. Take action now.
Ernie McDaniel is a Chartered Financial Consultant and President of McDaniel Financial. He can be reached at 318-798-9022.
