Show #380 Airing Sunday, 3/25/07
Earlier, Jim Lineweaver tipped us off to some retirement time bombs that could blow up our plans for a secure financial future. One financial reversal, one serious illness, one auto accident, one lawsuit, could cause you to lose everything. Here to explain how to protect yourself and your savings is my law partner, Mike Solomon.
Question: Why would it be a mistake to overlook putting a lock on our financial security?
Answer: Lawsuits and creditors can take everything you own. Maybe you never drink and drive but anyone can hit a pothole, lose control of the car, and run into a car with a couple of kids. You could wind up getting sued for millions of dollars. And some folks are especially at risk: doctors, teachers, and police officers, for example, get sued more than others due to their jobs. If you own an investment property, maybe a rental home, you have a higher liability risk too.
Question: Does a trust protect our nest egg?
Answer: No. A standard revocable living trust is good for probate protection, but it provides NO protection at all against lawsuits and creditors.
Question: How can we proect ourselves?
Answer: For most people the best protection is a limited liability company. This is something like a corporation, but you don't have to be a business to have one! You can create this company, put your savings into it, and protect it from lawsuits and creditors. Ohio created this tool specifically for this purpose.
Question: How does it work?
Answer: A lawyer should prepare the papers to create the LLC. There's paperwork that must be filed in the Secretary of State's office. You put your accounts into the company by changing the owner on the account to the name of the company. Once your assets are in the LLC, they get the legal protections.
Question: Is it expensive?
Answer: It can run several hundred dollars to several thousand dollars, depending on your situation.
Question: Can the company be sued?
Answer: Yes. It gets a little complicated. Let's say you have an auto accident. The other driver sues and gets a judgment against you for $1 million. They can put a "charging order" against your ownership units of the LLC, but, that has only limited value because they can't touch your bank accounts, stocks or other assets that are inside the LLC.
Question: So what good is a charging order?
Answer: It gives the creditor the right to any money you take out of the LLC. But if you don't take anything out, the creditor gets nothing. And creditors don't like charging orders because it can add to their taxes.
Question: Isn't liability insurance good enough?
Answer: It's good. An LLC doesn't take the place of insurance. But a person can always sue for more than the insurance you have. An LLC gives you that extra protection that's so important to protect your savings and your peace of mind.
You worked your whole life. Don't put that hard earned life savings at risk. Protect yourself with a limited liability company. For more information, give Mike Solomon a call.
