Asset Protection You Already Have

The term 'asset protection' is a provocative one in my area of the law. It comes up a lot in the context of probate ("protect my property from the government"), basic estate planning ("protect my property from greedy heirs"), and wealth planning ("protect my property from people who want to sue me"). The first two protections are addressed through common estate planning techniques that most of my clients have already secured. However the desire to protect property from people who could sue you is the most misunderstood and, sometimes, easiest to answer.

I'll follow this post with a discussion of more advanced techniques, but most people are surprised that they already have significant asset protection as a benefit to being a resident of their home state. Every state offers their residents a list of "exempt assets, " property that cannot be taken away from them regardless of the size of the judgment. The rationale is that the state does not want their residents to become their responsibility because a sideways judgement has left them in financial ruin. Nevada, more than most states in the country, is quite generous when it comes to that list of exempt assets. And it is those exempt assets that provide you asset protection without lifting a finger.

Chapter 21 of the Nevada Revised Statutes (NRS 21) (specifically NRS 21.090) provides the comprehensive list of assets that cannot be attached for execution on a judgment. The list includes your home (provided you have recorded a valid homestead declaration), as much as 82% of your income (subject to a specific formula), one vehicle as long as the equity does not exceed $15,000, up to $12,000 in clothes and household furnishings, and an unlimited amount of equity in your life insurance/annuity proceeds (thank the lobbyists for that!).

The list also includes extremely valuable assets like up to one million dollars in your IRA and assets held in a spendthrift trust.

This protection, together with federal protection of ERISA-qualified plans like your 401k, cover most of my clients' wealth and eliminates the need for more unique and expensive planning like the use of LLCs and spendthrift trusts. It does not protect, however, investment properties or cash and equities inside of brokerage accounts. That's where most of my asset protection clients take additional measures and are topics to be explored in posts to follow.