If you don’t protect certain financial assets as part of a comprehensive estate plan, your assets could be threatened by:
- Insufficient insurance for protection
- Overpaying taxes associated with the assets
- Insufficient assets for retirement
- A personal injury lawsuit against you
- Someone in your family causing a car accident
- A professional malpractice lawsuit against you or your spouse
- A judgment against your business by an employee, partner, or another associate
- Inadequate health care savings/planning
- Medical debt from an illness that was unexpected
Assets Protected Under North Carolina Law
North Carolina and federal laws protect certain assets. These assets cannot be taken from you by lawsuits, creditors, or other claims.
Most of your retirement plans should be assets that are protected by law. Qualified accounts include 401(k)s, individual retirement accounts (IRAs), and Roth individual retirement accounts (Roth IRAs).
However, those protections have been eroding. The U.S. Supreme Court and a bankruptcy court recently ruled that inherited retirement plans are not protected assets. At this point, only personal retirement accounts may qualify for full state and federal protections.
Some real estate may be protected as well. For example, if a married couple owns equal parts of their home and only one spouse is sued, the home is protected. However, the deed must be set up expressly so this protection applies.
Under the North Carolina Homestead Exemption, a maximum of $35,000 of equity in a home for a single person or up to $70,000 of equity for a married couple may be protected. For an individual over 65, the protection increases to $60,000.
The North Carolina Constitution and statutes protect life insurance policies. You can set up a life insurance policy to build cash value protected from creditors’ claims. Upon your death, it can pass to your family without being taken by creditors.
529 College Savings Plans
A portion of your 529 college savings plans may be protected under North Carolina law. Specifically, each owner of a college savings plan may protect up to $25,000 total (not per child). Contributions made within one year of a bankruptcy filing may be at risk unless they are consistent with past contribution patterns.
Exemptions on Income
Certain income may be protected under North Carolina law. Disability payments, alimony, and child support cannot be taken by creditors or lawsuits as long as they are “reasonably necessary” for you and/or a dependent child. However, there are exceptions if an accident or injury results in disability payments, for example.
Other Asset Exemptions
Other assets protected under North Carolina law include miscellaneous exemptions. Up to $3,500 of the value of an automobile may be protected. Household furniture and general possessions valued up to $9,000 may be protected. Tools and materials for a profession or trade valued up to $2,000 may also be exempt.
What Assets Are at Risk?
While everyone’s financial situation is unique, these are some examples of personal assets that can be threatened by legal action without proper planning:
- Digital Assets
- Joint or individual bank accounts
- Investment / Stock Portfolios
- Real Estate & Investment Properties
- Rental / Vacation Homes
- Boats and other vehicles
- Privately Owned Business Assets
How Can You Protect Your Assets in NC?
When establishing a plan to protect your assets, you must work with an asset preservation law firm to legally safeguard your property. There are multiple ways you can create a financial plan that strategically shields yourself and your family.
Create a Limited Liability Company (LLC)
A limited liability company (LLC) agreement can protect your personal assets from lawsuits or creditors targeting your business. The LLC becomes a separate “identity” for your business. It’s important to note that you may still be liable for some business debts if you file for bankruptcy.
Develop a Buy-Sell Agreement
A buy-sell agreement can stipulate how your share of a business may be transferred in the event of your departure, incapacity, or death. These agreements can also determine how to estimate a business’s value. You may also include a redemption agreement, which requires the business entity to purchase the interests of a selling owner.
Purchase Liability Insurance
If you drive a car in North Carolina, you are required to carry a certain amount of liability insurance. However, you can also get liability insurance to protect your other assets, including your home and business. This can protect you in the event of a lawsuit.
Transfer Assets to a Family Limited Partnership
Many doctors use a family-limited partnership (FLP) to protect their practices. However, other businesses can use this method of asset protection as well. Through an FLP, assets are legally protected from creditors, including real estate, business interests, intellectual property, bank accounts, stock, bonds, and more.
Place Assets into a Trust
Asset protection trusts can hold an individual’s assets to shield them from creditors and lawsuits. These trusts offer the best protection against lawsuits, judgments, and creditors. They can deter costly litigation before it even begins.
Contact an Asset Protection Lawyer for Help
If you want to ensure your assets are protected for your future and your family’s security, then you should consult with an asset protection law firm that has experience with all-encompassing estate plan services. This needs to be done before you file bankruptcy or face a lawsuit. Instead, begin estate planning for your assets today.