Asset Protection - Umbrella insurance, trusts, etc

[Stash Man]

Hi!  Want to get Mustachians' input on a few things:

1) What are your asset protection strategies?  Besides market risks, other risks include medical expenses, lawsuits, and possibly more.  I guess medical expenses are easier - just buy medical insurance.  But what do you do to guard against the other risks?

2) Trust and umbrella insurance - which one is better?   I have umbrella insurance, and I'm wondering if I should set up a trust as well.  Does anyone here have a trust?

[dude]

Health insurance, obviously.

I have life insurance through my employer.  I generally subscribe to the "DIME" theory of insurance -- that is, life insurance should cover Debt, Income, Mortgage and Education (college for dependent kids).  As each of those goes away, you lower your coverage accordingly. 

I have a Long-Term Care plan because it's pretty reasonable (Fed employees are a large insurance pool).  The benefit is automatically adjusted 4% each year.

In addition to our Master insurance (we live in a 2-condo bldg.), we have an H-06 policy that covers inside the walls (personal property, furnishings, cabinets, appliances, etc.).

And a $1million umbrella policy.

I think this more than covers all contingencies for me.

[Johnny Aloha]

Stashman, obviously no one can give you decent advice with such little information presented.

Family status, investments, etc will all have a huge impact on your personal strategy.

For example, if you are a young, single guy with $5M in tax-advantaged retirement accounts, the answer will be much different that a old guy with family that owns a lot of cheap rental properties!

There are lots of risks to consider, but you can come up to speed quickly if you invest some time reading books, blogs, etc.  If you don't want to invest the time to learn, definitely seek wise counsel.

[jim555]

401k and IRAs (depending on the state) are protected assets.  Also many states have homesteading exemptions for real estate.  Don't forget being careful to avoid risks in the first place.
If one is much older consider a Life Estate Deed for real estate, protects against claims as well.

[Miss Prim]

My son-in-law owns his own independent insurance agency and he makes sure we are well insured for just about anything!  Thank goodness, because I was always concerned about liability issues with having a rental, storing cars in our pole barn, renting out our basement apartment and even selling eggs from my chickens for awhile!  My husband was kind of like "Oh we don't need insurance for this and that" and I was the one pushing to make sure we were properly insured.  Now my son-in-law keeps up on all that.  At least now I can sleep at night!

                                                                                        Miss Prim

[WildJager]

I'll pitch in for the ignorant masses on general wealth protection.

I've maxed out protected assets for my family (TSP, IRA... Which I assume are protected).  Other assets I've maintained a more cavalier attitude.  This goes against the philosophy of my parents, who deeply insure their wealth and assets.  Being relatively minimalist, I'm not to concerned with losing what I own property wise.  I can easily build again if we lose all of our stuff.  Health insurance is a given.

My question is, asset wise, should I have / do I need protection for general taxable investment assets?  Assume 0.5MM.  Is this something that should be protected with an umbrella like policy?  I'm looking for the cost/benefit analysis and what I can expect to potentially lose and why.  United States for what it's worth.  I obviously need to read up more on this, but a general analysis would be great.

Thanks to Stash Man for bringing up the question.

[katsiki]

Just chiming in to say that an umbrella policy can be pretty cheap.  I was very surprised to get a quote from Geico (auto insurer at the time) for under $200.  It was around $700 before they factored in auto coverage (web site doesn't do that initially).  Coverage amount was $1,000,000.

[Mr. Green]

For the most part you can consider umbrella insurance to be an extension of your liability coverage on both home and auto. Home might be the weaker case for that kind of coverage unless you did something like built a shoddy desk and had a party for 20 where it collapsed and they all sued you. However, auto accidents can happen at any time. An accident that involved a fatality or two, or even major injuries can result in a big liability suit. I was told that for $100-200 a year, not only was I buying the extra coverage but I was also buying high-priced lawyers who work for the insurance company. If they have $1.5 million in total liability hanging out there you can be sure they're going to do everything they can to limit exposure. I don't know what big shot attorneys would cost if someone was suing you directly but I imagine it would go well into five figures. If you have lots of money in non-retirement accounts like a brokerage account or significant real estate holds it could all be at risk (with few exceptions) under the right circumstances. We had a $2 million umbrella added to our policy when we were with State Farm for $213.

[azure975]

I've looked into trusts as a way of protecting assets as well and it seems like there's no easy way to do this. Unless you create an irrevocable trust, meaning that you completely give up control of the money, trusts are still considered assets for lawsuit purposes. Some sites have mentioned certain offshore trusts but I doubt the legality of them. I would definitely be interested in hearing if anyone does know of legit way to protect assets in a trust!

[jim555]

In my state NY a Life Estate Deed is routinely used to transfer real estate on death while protecting it from legal claims like lawsuits or Medicaid Estate Recovery.  The Deed is irrevocable, and lets the person live in the home until death.  On death the title is transferred to the named remainderman.