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Asset Protection Planning: Assessing Your Risk

To determine the type of asset protection planning you need, we first need to assess your risk. How much do you have on the line if someone sues you? Here’s how to quickly add up what you look like to a legal opponent. Take our two-minute asset protection risk assessment. Weigh that in with your risk profile to consider whether or not you should seek legal protection of your wealth.

Assessing Your Risk

As a beginning asset protection step, try to get the most accurate assessment of your situation. You should familiarize yourself with the laws in your state. Most importantly, consult with an experienced professional who can offer guidance.

Related: Asset Protection Planning 101

Family Home / Primary Residence

First determine the equity by assessing the quick-sale market value of the home minus the loan balance. Then, check with your state to see what your homestead exemption is. That is, the amount of equity that is protected in a lawsuit. This can range from nothing, such as Pennsylvania, to everything, such as Texas (except in bankruptcy). Each state is different.

A $1 million home with $725,000 of equity in California has $75,000 protected by the state of California homestead exception laws for single individuals and $100,000 for married or single parents – this asset has $650,000 within a lawsuit’s reach.

Assessing Your Risk

Additional Homes / Properties

Perform an equity check by assessing the value and deducting the loan amount. If there’s income on the property, that is another asset. Rental and business properties do not enjoy the same protections that personal residences do. Some states offer homestead protection for the place you live. These same protections are not afforded to income and investment real estate.

An investment property worth $700,000 with a $400,000 loan that produces $90,000 in income per year would be several hundred thousand dollars in assets to satisfy a judgment.

business assets

Business Assets

Add up the value of the bank accounts, cash on hand, wholesale value of all equipment and furniture as well as other assets. Then subtract the liabilities, lease penalties and property wind-down costs. [1] Be sure to include vehicles; automobiles and trucks.

liquid assets

Liquid Assets

Add up your cash, savings, bonds, retirement accounts and investments, then deduct any fees/penalties for liquidating. In some states IRAs and pension funds are fully or partially protected.

Physical Assets

Add up the wholesale value, minus loan or lease amounts on any toys, cars, RVs, boats, planes, jewelry, guns, coins, etc., less any loans.