"There is no such thing as asset protection," said Jason Cain, head of the family wealth planning group in the central region for Credit Suisse Private Bank. "What there is is good business and estate planning that as a byproduct insulates your assets from future, potential creditors."
Or as Amy Jetel, a partner in the law firm of Beckett, Thackett & Jetel in Austin, Texas, said, such protection is like setting up a series of hurdles. "They can be knocked over, but every time you knock one over, it costs the creditor $500,000," she said. "So they might say, 'I'm going to settle.' They want the easy stuff."
While this may sound like the realm of just the truly wealthy, asset protection is something that people with a nice home and a couple of cars should consider, particularly if they can imagine being sued.
Certain professionals who are well off but far from rich, like lawyers, architects and doctors, are at a higher risk of being sued. And naturally, children who inherit money from parents or grandparents can become targets for lawsuits and higher divorce payouts, advisers said.
So how should people think about what they might need?
R. Hugh Magill, chief fiduciary officer at Northern Trust, said that putting a proper plan in place took time but needed to start with an assessment of what people had and how likely it was that someone would sue them for it.
"So much of the literature about asset protection starts with the assumption that you need an asset protection trust," Mr. Magill said. "I don't want to start with the solution. I want to start with the risk."
Insurance is the first level of protection. After the necessary home and auto policies, the most crucial thing is to have an umbrella policy that limits liability. Think of it as protection against the unexpected, like someone falling down your stairs or being hit by the car driven by your child.
"We view lawsuits as probably the most dangerous thing that our clients face," Jeremiah Hourihan, executive vice president at Chartis Private Client Group, said. "The No. 1 risk is a car accident where you or a family member causes harm to someone else. Those are the most frequent incidents we see."
He said the company's most common liability policy was for $10 million. Depending on how many homes and cars people have, he said, it generally costs about $2,000 to $3,000 a year for $10 million in umbrella coverage. He said yachts, boats or Jet Skis increased the cost.
These policies can also be written to include separate coverage for legal fees from a lawsuit as well as to protect people who serve on nonprofit boards and fear the group's coverage is inadequate if they are sued, Mr. Hourihan said.
Another easy step is to see what is automatically protected by the states where you live. Florida and Texas, for example, have homestead laws that allow primary residences to be excluded from lawsuits. Illinois and Pennsylvania have laws that protect the equity in a home when it is owned jointly if one spouse is sued.
Retirement assets, like 401(k) plans, and some types of insurance also have some protection from creditors.
Money put in trusts for heirs is another way to shield assets. If they are worded to give plenty of discretion to a trustee in making distributions, trusts can also serve double duty and protect children from lawsuits or divorce settlements, Mr. Magill said, and be more discreet and effective than prenuptial agreements.
People who work in certain professions, like lawyers, architects and engineers, also face liability by the nature of their work. They could be named as a party in a lawsuit, even if they did nothing wrong.
"Let's say the architect designs the building and the engineers do the drawings and there was a problem with the load-bearing structure," Mr. Magill said. "So it's whoever gets sued, they're going to name the architect."
In this, doctors are a category of professionals uniquely at risk. Mr. Cain said he made a point of telling physicians that they needed to have their strategy in place long before there was a lawsuit.