Asset Protection in California

[MrCheapo]

I saw the excellent thread on asset protection in MA. After reading thru it, it seems this issue is very state specific? I say that because someone mentioned in that thread moving to NH would solve all the OP problems.

Anyway, can people chime in regarding assset protection in CA w.r.t. to these three questions and other questions I should be asking?

Q1. What are the main threats to assets in CA. Is it just civil law suits or is there something else? If it's civil lawsuits is it mainly going to be personal injury

Q2. What federal and CA protections automatically exist and what do they mean in practice.

a) Main home. I believe there is a homestead act to cover this in CA upto $600K. But what does this mean if most homes in CA are closer to $1M in price. I understand I have to fill out some forms for this.
b) Retirement Accounts: 403/457/SEP/Roth. I believe these are all unconditionally protected and no paperwork is required.
c) Taxable accounts held at brokerage platforms. I believe these are not protected at all.

Q3. What are common mitigation strategies beyond upping your insurance limits and covering Umbrella insurance? In particular, mitigation to me means deflecting the chance of a lawsuit. My understanding is a major benefit of umbrella insurance is that the insurance companies lawyers act on your behalf saving you cost of representation and also deterring law suits.

[newparent7]

Insurance doesn’t deter lawsuits. If anything, it attracts them. It means there’s more money which is potentially recoverable. In terms of individual negligence claims, it’s almost always motor vehicle accidents, so in theory you could eliminate most of your exposure by not driving and using public transportation or Uber to go everywhere.

[gotoparks]

Mitigation strategy- Don't have guests at your home and stop driving.

[Weathering]

I’m interested in this thread also (CA resident). 3/4th of my assets are in (protected) retirement accounts, so I may be able to withstand an adverse civil legal situation (if one ever came up). Recently, my $1M GEICO umbrella policy was raised to $975/yr (up from $740/yr) so I will be looking into whether I should self insure beyond my auto and home owner’s insurance. My youngest child will be out of college in 3.5 years, so if I drop umbrella coverage it will be after that.

[quantAndHold]

I’m interested in this thread also (CA resident). 3/4th of my assets are in (protected) retirement accounts, so I may be able to withstand an adverse civil legal situation (if one ever came up). Recently, my $1M GEICO umbrella policy was raised to $975/yr (up from $740/yr) so I will be looking into whether I should self insure beyond my auto and home owner’s insurance. My youngest child will be out of college in 3.5 years, so if I drop umbrella coverage it will be after that.

Your umbrella policy cost will drop significantly after the last kid is off the books as well. It’s high because of he risk young drivers pose to the populace. Our State Farm $2m policy (we live in urban San Diego) is $475. 1 house, 2 cars, no kids, 2 60 and 70-something adults.

[Beensabu]

I believe there is a homestead act to cover this in CA upto $600K. But what does this mean if most homes in CA are closer to $1M in price. I understand I have to fill out some forms for this.

It covers up to the median home sale price in your county, with a current max of nearly $700k, that is adjusted annually for inflation.

It means some portion of your equity in your primary residence is protected from most creditors (exceptions are mechanic's liens, tax liens, and child/spousal support judgements). If equity falls within the exemption amount, creditors cannot force a sale. The exempted equity is protected in a voluntary sale as long as you buy a new primary residence within 6 months.

You have to fill out a few lines on a 1-page Declaration of Homestead form, have it notarized, and go to your local county Registrar/Recorder's Office to pay them a fee and record it. It's really easy.

[lzq]

Insurance doesn’t deter lawsuits. If anything, it attracts them. It means there’s more money which is potentially recoverable. In terms of individual negligence claims, it’s almost always motor vehicle accidents, so in theory you could eliminate most of your exposure by not driving and using public transportation or Uber to go everywhere.

This gave me a smile, and it is probably true. The other is probably one's home, because it is typically the most valuable thing that people have.

One can rent and walk everywhere. But it is nice to be able to drive and live out of a home. So an umbrella insurance is probably wise.

"Living" requires taking risks, which seems unavoidable. Also, the best asset protection is probably not having any legal asset. No point in suing a homeless person to lose money.

[cks]

Insurance doesn’t deter lawsuits. If anything, it attracts them. It means there’s more money which is potentially recoverable. In terms of individual negligence claims, it’s almost always motor vehicle accidents, so in theory you could eliminate most of your exposure by not driving and using public transportation or Uber to go everywhere.

How would the injured know if the OP is insured if they don't engage a lawyer first?

It appears that the OP is a homeowner, so he/she has recoverable assets.

[cks]

b) Retirement Accounts: 403/457/SEP/Roth. I believe these are all unconditionally protected and no paperwork is required.

I just did a quick internet search because I know this to be the case in my state.

IRAs get less protection from bankruptcy than 401k type accounts. Protection in IRAs appear to be limited to 1.5 M - consistent with the federal limit- whereas as 401/403/457s are fully protected.

Hopefully someone else will confirm.

[Bobby206]

Insurance doesn’t deter lawsuits. If anything, it attracts them. It means there’s more money which is potentially recoverable. In terms of individual negligence claims, it’s almost always motor vehicle accidents, so in theory you could eliminate most of your exposure by not driving and using public transportation or Uber to go everywhere.

The initial premise may or may not be true but the reason for having a big insurance policy is to settle lawsuits without the risk of going to court. You never know what a jury will do and you generally want to avoid that risk as a defendant in my opinion. There are also laws in some states related to when the defendant offers policy limits and the plaintiff doesn't accept them. Thus bigger is better, for insurance policies, in my opinion!

[tj]

I’m interested in this thread also (CA resident). 3/4th of my assets are in (protected) retirement accounts, so I may be able to withstand an adverse civil legal situation (if one ever came up). Recently, my $1M GEICO umbrella policy was raised to $975/yr (up from $740/yr) so I will be looking into whether I should self insure beyond my auto and home owner’s insurance. My youngest child will be out of college in 3.5 years, so if I drop umbrella coverage it will be after that.

Dumping your insurance policy isn't "self insuring", you're putting your assets at risk.

I always find it curious when people call no insurance self insurance

[newparent7]

Insurance doesn’t deter lawsuits. If anything, it attracts them. It means there’s more money which is potentially recoverable. In terms of individual negligence claims, it’s almost always motor vehicle accidents, so in theory you could eliminate most of your exposure by not driving and using public transportation or Uber to go everywhere.

How would the injured know if the OP is insured if they don't engage a lawyer first?

It appears that the OP is a homeowner, so he/she has recoverable assets.

Do you think a lawyer is going to go to trial without knowing the policy limits?

[cks]

How would the injured know if the OP is insured if they don't engage a lawyer first?

It appears that the OP is a homeowner, so he/she has recoverable assets.

Do you think a lawyer is going to go to trial without knowing the policy limits?

A lawyer would neither have the interest nor the authority to know the policy limits or the OP's discoverable assets unless he/she is retained by the injured.

I don't see how whether the OP is insured or what the policy limits are "attracts" a lawsuit since the injured at this point intends to sue.

[newparent7]

Do you think a lawyer is going to go to trial without knowing the policy limits?

A lawyer would neither have the interest nor the authority to know the policy limits or the OP's discoverable assets unless he/she is retained by the injured.

I don't see how whether the OP is insured or what the policy limits are "attracts" a lawsuit since the injured at this point intends to sue.

Being retained by the insured and a lawsuit with a trial are different things.

[angelescrest]

b) Retirement Accounts: 403/457/SEP/Roth. I believe these are all unconditionally protected and no paperwork is required.

IRAs get less protection from bankruptcy than 401k type accounts. Protection in IRAs appear to be limited to 1.5 M - consistent with the federal limit- whereas as 401/403/457s are fully protected.

Hopefully someone else will confirm.

This is my understanding as well, though I am no lawyer. But I read enough to have decided to keep our 401k money where it is, since rolling over to an IRA would give us less protection. If my memory serves me right there aren’t many instances of judgments made that took from someone’s IRA—I think this was all from reading various blogs of different legal firms here.

[Hebell]

While I know the focus is on minimizing litigation risks, but asset protection in California must include earthquake and fire risks. While I do not live in an area with those risks, it seems like there could be cascading effects to your family and portfolio under various damage and injury scenarios.