If you are concerned about potential liabilities and the threat of losing the nest egg you have worked to create, you should know the importance of being proactive. It can be very confusing to search online for information, , only to find that wealth preservation, sometimes called asset protection, comes in a wide variety of formats. After meeting with your advisors, and trying to make sense of it, you might discover a predictable trend. Your accountant will suggest some tax savings techniques to you. Your financial planner might recommend buying more insurance. And your attorney will probably want to set up a trust or limited liability entity. Each of these advisors will be inclined to implement the approach that they know and customarily use. These might all be valid considerations, but they will probably fall short of what is needed in total.
There are many commonsense steps that a reasonable person can take to prevent lawsuits. My favorites are: drive sensibly, don't display your wealth, be very careful of what you say, and seldom, if ever, post anything on social media. If those suggestions seem a bit extreme, you might want to consider them a little further. There are many more options, and most of them don't cost anything. Of course, steps taken to avoid lawsuits, and the potential liability that comes with them, involves a spectrum of precautionary steps that run from the no-cost, common sense behaviors listed earlier, to the more elaborate and expensive arrangements that will include an A-Z estate plan, asset protection and financial plan put together by one of the top law firms in the country.
In between the two extremes are an abundance of steps that I consider to be essential. These include the necessity of operating a business inside a limited liability entity, and almost never in a proprietorship or general partnership. There are also dangers of owning assets as tenants-in-common. In such an arrangement each co-owner owns a divided fractional share of the property. This creates serious lawsuit dangers while simultaneously providing no creditor protection. There are numerous examples available to illustrate the risks of ‘tenants-in-common'. Just one situation is that your co-owner's (or spouse's) creditors can force a sale of the entire property to satisfy your co-owner's (or spouse's) personal debts. If you own a boat or Wave Runner, an automobile, snowmobile, plane, or other recreational “toy”, then you have the normal liability problems that go along with negligent driving of any one of these vehicles.
If you have teenage children, you can have seemingly endless risks to worry about. At some point you might go out of town overnight and leave your children at home. Imagine telling your teenage child on Friday morning that you are going out that evening and that you won't be back until sometime the following day. Almost the first thing the teenager does is to text all his friends (which gets re-texted to a lot of other potential partiers) informing them that the party tonight is at your house with the added mention that the parents are out of town. The note also says food and refreshments will be provided. Assuming the worst, a dozen teenagers walk in the back door just as you round the bend on the way from your house.
Four or five hours later these severely drunk teenagers pour themselves into their cars to drive home. As luck would have it, several of the teenagers made it only a short distance down the road before they hit a tree. How bad was the accident? The tragic outcome might be the death of someone in the car. But we also have to consider the possibility that the passengers and driver end up with extensive and life-altering injuries. Contemplate the resulting lawsuit that will be filed to compensate and care for these possibly disabled young people for the rest of their lives. Imagine that the drunk driving teenager did not hit a tree but instead hit the local cardiologist. Assume the cardiologist makes $1,000,000 a year and cannot thereafter practice medicine for the next 30 years due to the resulting injuries.
Beyond the ways to prevent lawsuits, are the ways to avoid lawsuits once they appear on the horizon. In the above scenarios, the parent and homeowner become a potential litigant in what is commonly known as the great American “lawsuit lottery”. By then, the services of an experienced (and very expensive) attorney will be representing the injured parties, to compensation from the unfortunate parents of the teenage party host.
America holds the undisputed title as the lawsuit capital of the world. It is a country where an average of forty million civil claims are filed every year. That averages almost 110,000 or more a day or more than one lawsuit every second. The proliferation of lawsuits is not surprising. The United States has more lawyers than any other country in the world. There are more than 1,300,000 licensed attorneys in the U.S. , and the largest number of lawyers per capita in the world. It is an honorable and necessary calling, because many lawsuits have merit, but a sizable portion are frivolous. They fall into the nuisance category of legal actions that are filed by ambulance chasers hoping to make a quick buck from unsuspecting defendants who have deep pockets.
Take appropriate steps so that your assets and loved ones are protected – and you will not become a victim to litigation.