Assets are what you own. An asset is what you own; a liability is what you owe. So, after you’ve built up those assets, the question is: What happens if you have a lawsuit against you, or you declare bankruptcy? What could be protected?
One of the best ways you can protect your assets is through your retirement plans. We’re always encouraging people to save for retirement anyway. This is an extra plus. If you have a lawsuit or bankruptcy, you have some protections for those 401(k)s, IRAs, 403(b)s, etc. Know that they’re still not protected from the Feds. So, if you owe taxes, they can still stick their hands in that. And, if you owe child support, they will not be protected.
This does not apply to inherited IRAs. Now if you inherit an IRA from a spouse, you are protected. But, for instance, if you have a parent who dies, and they pass on an IRA to you, then that can be accessed.
Those 529 Education Plans are also protected. Here in Mississippi, we call that the MACS Plan. So, if you put money into that plan for a child, you’ll have some protection against lawsuits and bankruptcy.
The other question we always hear is: What about my real estate? You do have some protection for your homestead, or where you are living, but each state is different. Texas and Florida are the most generous in protecting those houses up to whatever amount. In Mississippi, when it comes to bankruptcy, you can only keep $75,000 of equity, or ownership, of the house. That doesn’t mean value but what you own. So, be careful with that. There can be some protection of your house in a lawsuit depending on the ownership. What you might want to consider is an umbrella liability insurance policy to protect all those assets you’ve built up; but read the fine print, because there could be limitations on that policy.
What if you own a business? Many people will incorporate their business for protection. An S Corporation or an LLC (a Limited Liability Corporation) offers some protection against lawsuits and could help you in that way.
Finally, you may want to set up something called an asset protection trust, but you’re going to face bigtime legal fees if you do that. The question you have to ask is: How likely are you to need one of these, and should you pursue this?
Remember, those retirement accounts are protected in many ways, so save for retirement and protect your assets at the same time!