Wealth Planning News
Vol. IV, No. 1
Liability In America
We live in a litigious society. We face liabilities in the workplace, from "hot assets" we own, from a "hot" business or profession, and for a myriad of other reasons. "Hot" assets or "hot" professions generate liability claims. Claims are often not covered by insurance or only partly covered.
We have to protect ourselves from catastrophic liability claims. We pay our bills and our debts. But we don't want to lose all we have built up over a lifetime of work and saving when some unexpected claim arises.
We have to protect our loved ones from these claims. And we don't want our loved ones to lose gifts or inheritances we give them.
• $900,000 to a couple who left a house and a garage door opened and hit them as it went up, from a home owner sued for negligence. Injuries to the man resulted in medical expenses of $39,000. Insurance coverage only $500,000
• $2,000,000 to a tenant who was moving out of a rental, from the owner for having dangerous premises. The tenant was carrying a box spring and bumped into a railing that gave way on the front deck. Injuries caused medical expenses of $180,000.
• $1,300,000 to a store manager who was raped and suffered post traumatic stress disorder, from the store owner for inadequate security at the store.
• Single mom sued for millions under the "family car doctrine" after daughter drove mom's car and caused an accident that seriously injured the driver of another car. Mom stands to lose her only asset, a valuable farm she inherited when her parents died. Insurance coverage $300,000.
Professionals face huge malpractice liability claims for negligence. Claims can often exceed insurance coverage or be based on things not covered by the insurance.
Business owners face huge liability claims from employees and customers. Insurance coverage is often unavailable or inadequate.
• A young foreman was sued for alleged sexual harassment and won the case, after liquidating all of his investments worth $54,000 for defense costs when he would not settle the false claim. No insurance coverage for the claim.
In This Issue
1. Liability In America
2. Hot Assets
3. Hot Jobs
5. What To Do
Our legal system could be called jackpot justice. A claimant has something like a winning lottery ticket. The payoff is often set by a Robin Hood jury. The limit of what you can lose is the total of everything you have.
• Parents made substantial gifts to a son and his wife to purchase life insurance on parents for the benefit of the son and four siblings who were named as beneficiaries. The son and his wife were named as policy owners. Son's wife later divorced the son and took $120,000 as part of her "marital property" from the cash value buildup in the family insurance policy.
• Parents left an inheritance to a son who bought an expensive new home. He put it into joint tenancy with his wife, thereby converting it to marital property. The wife later divorced him taking half of the home equity, which was half of his total inheritance.
• Mom deeded her farm to a daughter who died from cancer, leaving the farm to the son-in-law who soon remarried a younger woman with children from a prior marriage. The new wife will outlive the son-in-law and her children will likely inherit all or most of the farm that should have gone to mom's own grandchildren.
What To Do
We should do all we can to avoid liability claims. But that is not enough. We should also protect what we have from creditors and predators. We should do all we can to protect our heirs from their own creditors and predators.
We need a well designed wealth plan that touches all aspects of property ownership, business entity design, and design of asset protection trusts for gifts we make and for inheritances we will leave to loved ones. Income tax savings and transfer tax savings also flow from wealth planning, but those topics are outside the present discussion.