For many people in the Columbia area, their estate consists almost entirely of their home. Their retirement accounts will fall to second place, but it will be a distant second place. This brings up the importance of maintaining a home for a person’s wealth portfolio.
Home values in the Columbia metropolitan area are off from their 2008 peak, but have rebounded nicely since then. Homes are basically savings vessels for people. Their values aren’t as turbulent as stocks and bonds, and they have the added bonus of being the roof over a person’s head. However, they can be threatened by litigation.
Every state in the country has a laundry list of assets that can be protected from forced liquidation in a lawsuit to pay a judgment creditor’s debt. Most states include a person’s home, usually up to a certain value. Maryland, unfortunately, is not one of those states.
There are two ways to protect your home from a lawsuit. The first is through liability insurance. The second is through an irrevocable trust, where the home is transferred to a trustee, but remains yours.
Why would anyone want to do this? If you are employed in a career where you expect to be sued at some point, such as being a doctor or a rental property owner, it makes sense to be prepared. Insurance is widely viewed as the first defense against a lawsuit.
Some people who are insured will find that their insurance will not pay out. Other people, for whatever reason, will find that insurance refuses to cover their occupation. It is not against the law for doctors in Maryland to not carry liability insurance.
The solution is to prepare in advance and to move whatever is at risk into an irrevocable trust after consulting with an attorney who works in asset protection.