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Retirement Accounts & Estate Planning:
What to know when moving protected assets
I wanted to take this opportunity to talk to you a little bit about retirement plans and retirement accounts. Now, this is something that most people have, be it IRAs, 401Ks. There’s a few other alphabet soups and number soups that are out there; but in general, those are the two of the most popular categories that there are. They are a great vehicle to use to save money for the future. We are attorneys and we don’t do this type of plan, but your financial planner can set you up with the appropriate people to do these types of retirement accounts. Sometimes you’ll have these retirement accounts through your work or employer. Sometimes, for a business owner, a retirement planner will set these up to provide a benefit for their client while still being able to leverage and maximize it for their contributions. Those are some of the things that that are important to have in mind as you’re creating these retirement accounts.
Now, why am I talking to you about retirement accounts? Well, this is one of those types of assets that are already protected. So, we’ve talked about your homestead before. Your homestead in Texas, where you live, is protected from lawsuits and judgments. So, it’s very difficult for you to lose your house if you get sued, if it’s your homestead. If it’s not your homestead, and if you rent, well, that’s another question. That property belongs to somebody else, and they can’t take away somebody else’s property. Like your homestead, your retirement accounts in Texas are protected by the property code. As an exempt asset, it’s an asset that can’t be taken from you if you are sued personally or if there’s a judgment. One part of that category of protected assets is an insurance policy. So, insurance is also protected under the statute. And annuities, most of them are associated with an insurance product and therefore are going to be considered protected from those liabilities. One of the most infamous people who had annuities was O.J. Simpson. That’s how he was able to afford to keep playing golf at those fancy golf courses and golf clubs after all of those legal fees, lawsuits and judgments against him, because he had annuities. His money, those annuities, paid him and the money that he received was asset protected. The annuities were asset protected, so he had a way to receive money that couldn’t be taken away in a lawsuit. Judgment proof and creditor proof. Those are different ways to describe how annuities and retirement accounts can be used in your asset mix when you’re looking at doing your estate plans.
If you want us to look into kind of how this piece of the puzzle fits in with the rest of your asset base, reach out to us because it’s important to coordinate things properly. If you move certain assets that are already asset protected into another asset protected vehicle, it could create an opening for those things to be exposed. So, you want to be really careful how you structure things and how you move things when you’re planning your estate, even if your retirement account is your main asset. You want to be careful that it is properly and appropriately set up to not create a problem, both tax wise, for you and for your family in the future, as much as to lose the asset protection that it already has by statute.