Can a judgment creditor take your car? The answer is usually “yes?” That said, how do you provide asset protection for vehicles? That is, cars, automobiles, trucks, etc? This question may come from two angles. First, what happens when someone sues you and tries to take your car away? Second, what if you get into a wreck and someone sues you? So, we answer this question from two perspectives.
From an asset protection standpoint, your autos and vehicles are an acute source of liability. Probably the most dangerous thing that you do is drive your car. Your CPA might advise you to purchase a vehicle for your business. However, they would be coming from an accounting perspective. They are primarily looking at the tax advantages. Sure, buy a vehicle for business use and deduct the expenses. But owning a vehicle in your business is like opening the door and inviting a lawsuit into your main source of income.
How do you keep someone from suing you and taking your vehicles? First, put each automobile (car) into a separate title holding trust. The title holding trust gives you privacy of ownership. So, if someone types your name in the public records, it is easy to see what cars you own. If you hold title to your name, boom, every car you own will appear. However, if you hold your cars in private trusts, you become a lot less of an attractive target for asset-sniffing contingent fee lawyers. There are some bankruptcy creditor exemptions but they are only in the range of a few thousand dollars in most states. That only amounts about 10% of the price of the average new car sold today ($33,560 as of this writing).
The next step is to set up one LLC for each car. The land trust provides privacy of ownership. The LLC provides asset protection from lawsuits. That works two ways. If someone is driving your car and gets into a wreck, they can sue the owner of the car and the driver of the car. The LLC acts as a shield between you and that lawsuit.
Way number two the LLC protects you is via asset protection. When someone sues you, personally, there are provisions in LLC code that provide the following benefits. The LLC and anything inside of it may be shielded from seizure. Now it is best to take this action before a lawsuit strikes. But if one has already shown up at your door, it is generally better to take action to protect yourself than to leave yourself hanging wide open to the legal vultures. Protect yourself.
Finally, we set up another LLC that you own privately. We often do this in Wyoming because of the strong protection afforded to LLCs. Plus, Wyoming LLCs have reasonable annual renewal fees compared to Nevada and Delaware. Then we take that LLC and record liens against the cars. These are the equivalent of home equity line of credit liens against your car. This is called “equity stripping” because it removes the equity from your car.
If the “bad thing” happens, the courts may require you to show what happened to the proceeds of your car loan. If needed at that point, we can set up an international asset protection trust. Then an institution offshore will distribute the cash into a “you can’t touch it” account inside of your offshore trust.
Related content: How to Avoid Lawsuits
First thing you do is buy all of the insurance your provider will sell you. Get maximum coverage on yourself as a driver, for your vehicles and everything. Why purchase all this insurance when you have an asset protection plan in place? Simple, it’s easy and inexpensive. You want to put all of the barriers between liability and your assets that you can. Insurance is easy and can cover some of your exposure for a nominal cost. You can purchase an umbrella policy for your home, autos and all of your basic insurance from the same provider which will get you a great start on mitigating the liability that exists in a very easy and inexpensive manner.
A single auto accident could result in millions of dollars of liability. Your child could cause a collision, leaving you, as the parent, on the hook. Insurance, in this case, would your first line of defense. In the asset protection service arena, there are countless examples of a single car accident being an estate killer for an individual who didn’t protect themselves correctly. This has happened all too many times. Get insurance for your vehicles… and get as much as you can buy.
Conversely, there is a big problem with insurance…
Related: Protect Assets from Medical Bills
The problem with insurance is that coverage is limited. First, the amount they cover is limited in your policy. However, the amount for which someone can sue you is unlimited. Second, the exceptions written into today’s insurance policies are shocking. Ever try to make a claim? The knee-jerk reaction is for the insurance company to find an exception in the policy as to why the should not have to pay.
You are buying insurance against liability. Your provider insures you from liability created by accidents and events. Each type of insurance has its limitations and you will have to have multiple policies for each type of liability. For your home, cars, recreational vehicles, business location, etc.
The first thing on an insurance company’s agenda when you file a claim is to find their way out of having to pay up. They will only honor the claim once they are forced to by the contract, but make no mistake that your insurance company is not working for you, it is working for its shareholders. There are ways to get around insurance policies and your insurance provider will be the pioneer in this when it is time to file for a claim. This is why you don’t make insurance your only asset protection initiative. So, create layers in your asset protection strategy from a simple insurance policy, all the way up to an offshore trust and bulletproof measures. You don’t want to rely on just one layer to totally protect your assets.
There are ways to protect your car from judgment creditors. Owning a car in your personal name is not the best way to go. The solution is to own your car in a legal entity that gives your privacy and protection. For additional information on keeping a creditor from taking your car, use the number or inquiry forms on this page.