Is there a way to protect your savings so it won't be taken if you end up owing a fortune in medical bills or if someone sues you?

Answer 1

Yes. It's referred to as a living trust. An attorney can set one up for a nominal fee.

another protection against law suits and bankrupcy are qualified IRA's. These, I have heard, are protected against the above

DO NOT BUY ANYTHING FROM ANYONE WHO WANTS TO SELL YOU A "LIVING TRUST".

A "living trust" will not protect your assets from medical bills or other creditors. "Living trusts" are a gimmick used by shady stockbrokers, insurance salesmen or get people to buy very high commission investments. There are valid reasons to use trusts, for example to protect the inheritance of a minor child, a mentally handicapped dependent and (for the families with assets over $5 million) to minimize estate taxes.

An IRA will generally protect your assets from creditors but it also makes them difficult and expensive for you to access the funds. If you have few assets or only a house with a big mortgage, bankruptcy will protect a small amount of assets but if you have ample assets or a house with a lot of equity, the bankruptcy court will sell your assets to pay your creditors.

There are "asset protection trusts", these can be very expensive, must be located in states or countries that allow them (Alaska, Ireland, etc.), they can only hold money, stocks and bonds, for example, you can't put your house in one or your business. Asset protection trusts are for people that have at least a couple million in cash to invest.

What can a regular middle-class family do to protect themselves against financial ruin?

1. Maintain a reasonable level of liability insurance. My state requires that drivers have a minimum of $25,000 of auto liability insurance with a minimum of $12,500 limit for each claim. That wouldn't pay for totalling a subcompact. Unless you're poor and will remain so, get a minimum of $250,000 of liability insurance. When your assets go up, increase your insurance limits so your insurance limits are equal to your assets.

2. Have health insurance. If you can't afford a comprehensive health care policy - buy a high limit policy. A high limit policy with a $5,000 will only cost a few hundred dollars a year, if you have a major illness, it will be a pain to pay the first $5,000 but it won't bankrupt your family and you (or your loved ones) wouldn't have to rely on the scanty coverage and strange exclusions of Medicaid. If a doctor or hospital knows that your treatment wil cost thousands more than Medicaid will pay, you're not going to get the best of care.

2. If you are married, does your state allow "tenancy by the entirities"? If so, your house and other property should be titled that way. Property owned by the entirities means only someone who can sue both spouses can take the property - most lawsuits are against one spouse or the other - not both.

3. If one spouse has a higher risk, he or she should own nothing. If the wife is a brain surgeon and the husband is a sales manager - the wife is the high risk spouse, she should own nothing.

4. College savings should be in the children's names, preferably in a 529 tax deferred plan.

5. Except your house or other property with a mortgage, never own any real estate in your own name. Real estate records are open to the public, I can check if someone owns real estate in under a minute. If you are a potential defendant in a lawsuit, checking the local property records can be a red flag saying "Sue me, I'm rich." Set up a corporation, partnership or LLC to own the property, and if you're Joan Smith, don't name it "Joan Smith, LLC" -

Another option is Chapter 7 bankruptcy which depending on the state in which you reside and how long you have lived there could eliminate the total debt .

Mark Jalali

Fort Myers