Are there any sure proof ways to safeguard my nest egg?

Are there any sure proof ways to safeguard my nest egg? I am 62 years old, own three properties, have approximately $200,000 invested and approximately $130,000 in savings. I'm concerned that the properties and money in my savings account would be susceptible to bill collectors if I were to encounter medical or legal hardships in my retirement. Is there any way to protect my money against those types of financial issues?

 Co-Published on Investopedia

Co-Published on Investopedia

There are no sure proof ways to safeguard a nest egg, but there are things you can do which will improve your protections and increase the safeguards. Below are some general recommendations which can help you see what tools are available to you to protect your wealth based on the information provided about your situation.

To get more specific recommendations, an adviser will need to know more details. I do recommend working with a fiduciary financial adviser as there is a lot of complexity which is going to be based on your personal situation. The adviser should also work with a local attorney, as some of the protections tactics can only be executed by an attorney, and the rules are different for each state.

PURCHASE APPROPRIATE INSURANCE

As you identified, the biggest risk to your wealth is a potential lawsuit. The best protection against this is to make sure you have sufficient insurance to cover you. This is by far the most important aspect, as insurance policies will provide you with not only liability coverage, but also pay for a lawyer to defend you in court. Your health insurance will also be important, as it is your first line of defense against massive medical expenses.

If you are concerned about being sold more insurance than you need, hire a fee-only adviser to do the insurance analysis. These advisers get paid by you directly, so their income is the same no matter how much insurance they advise you to get. Then you can ask an insurance broker to get you the policies the adviser recommends. If the adviser says they can sell you (or get you) the insurance directly, then they are not a fee-only adviser as insurance can currently only be sold by a commissioned sales rep.

ESTABLISH LLC OR OTHER ENTITY PROTECTION

Entity protection means you create a legal entity, like a corporation or LLC, which can shield you from some liability. Ideally, you will likely want a separate entity to own property so that a lawsuit from one property would not be able to take the other properties away from you. Don't do an online package, as there are lots of details which can cause the entity protection to be weaker or nonexistent if the legal documents are not written correctly. A lawyer in your area can help with this, and should coordinate their efforts with the other aspects of your plan.

USE CAUTION WHEN ROLLING OVER 401(k) PLANS

If the $200,000 is invested in a 401(k) plan at work, you will want to be careful about rolling them over. This is because 401(k) plans have the strongest creditor protections to keep your retirement money from being subject to a lawsuit or settlement. Some states will offer similar protections to IRA accounts, so a rollover may be appropriate. But be careful and ask questions. If the investments are not in a 401(k) and should be based on your state’s laws, a good adviser should be able to help you protect the investment.

KEEP PROPERTIES UPDATED

As a landlord, your biggest risk comes from a tenant or other person hurting themselves at your properties. Make sure to keep them up-to-date, and make sure they are up to current city code. If your properties do not meet existing code, you will be in a weaker position to defend yourself against a lawsuit.


Joshua Escalante Troesh is the President of Purposeful Strategic Partners and a tenured professor of Business at El Camino College. To explore working with him on your personal financial planning and investment advising needs, simply schedule a free Discover Meeting.


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