Are Your Assets Protected? by Judy Tuggle

It seems our society has grown more and more litigious. Frivolous lawsuits have driven up the cost of all types of insurance as well as the cost of goods and services provided. Many professionals and business owners have asked the question, “How can I protect what I have worked so hard to build?” The following is a brief summary of options available to help preserve one's financial security.

First, always maximize contributions to pre-tax retirement savings opportunities, such as 401(k) plans or IRAs. These savings make good financial sense for many reasons. They reduce current income tax liability while accumulating growth tax-free, and are not reachable by a judgment creditor until such time as minimum distributions are required after age 70, and even then only to a small degree.

Second, the accumulation of equity in one's homestead is a good way to protect assets. Inside the city limits a person's home and up to 1 acre is protected from creditors, as is up to 160 acres if one lives outside of the city limits. It is always good to keep in mind the zoning and/or covenant restrictions of a neighborhood as well, as this will affect the practical likelihood that a judgment creditor might try to partition any interest in a home inside the city limits which sits on more than one acre.

Often a married couple will incorporate the use of "his" and " hers" revocable trusts for estate planning purposes. This also provides asset protection, in that the judgment creditors of one spouse may not reach the assets of the other spouse's revocable trust, except for those creditors who actually provided for "necessities" defined as medical services, food, shelter, etc. If one spouse is engaged in a profession which is typically at risk for frivolous lawsuits, the other spouse may hold marital assets in his or her revocable trust to protect them from judgment creditors.

If a couple desires an even greater level of protection, the family limited partnership is an option to be explored. This separate entity is essentially an investment partnership, the partners just happen to be married or otherwise related. Individual assets owned by a limited partnership may not be reached by the judgment creditors of the owner of the limited partnership interest. The judgment creditor might acquire a percentage of the interest, but that is a most unattractive acquisition, in that the owner of a limited partnership interest has no rights to control distribution of any economic benefit from the partnership and can even be the unhappy recipient of what is termed "phantom income".

In response to the outcry of Oklahoma physicians following the malpractice insurance crisis here in Oklahoma this year, Oklahomans now have available the option of creating a Family Wealth Preservation Trust. These trusts must have an Oklahoma Corporate Trustee, own Oklahoma assets, be created for the benefit of the Grantor's spouse and/or children or a qualified charity, and may be revocable or irrevocable. These trusts are designed to shelter one million dollars, plus the appreciation thereof, from judgment creditors. There are still outstanding questions concerning this recent legislation, however, it appears the objective is to provide some security to the traditional families of Oklahoma, and, if one fits within this category, this goal may be achieved if one is willing to abide by the restrictions imposed by the law. If you would like to discuss this new law to determine if it might be incorporated within your estate plan, or if you have any other questions regarding asset protection, give us a call.