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The Wealth Counselor
How a Fender Bender Might Impact Your Clients' Finances and Estate Plan
In the chilling words of several George R. R. Martin’s Game of Thrones characters, “Winter is coming.”
 
Along with this change of seasons comes a change in driving conditions in much of North America—slippery roads, rain, snow, less sunlight during the morning and evening commutes, and a variety of other hazards. Unfortunately, with an increase in such risks comes an increase in the likelihood of your clients being involved in a car accident. But far too few have given much thought to what steps should be taken if they are actually involved in a fender bender.
 
How Car Accidents Can Impact a Client’s Estate Plan
 
Healthcare decision-making. In the event of an accident where a client becomes unable to speak or make decisions for themselves due to an injury, they will need to have someone who can speak to doctors and medical providers on their behalf. If a client has planned in advance, a validly executed medical power of attorney will allow someone the client has chosen previously (a healthcare agent) to speak with doctors and arrange for treatment until the client regains consciousness. If a client does not have a medical power of attorney in place, decision-making authority could be unclear and might delay them receiving certain types of medical treatment. Thus, it is important that your clients not only have a medical power of attorney in place and signed, but also that they inform those closest to them about where to obtain a copy of it should they need to be rushed to a hospital in the event of an accident.
 
Adequate insurance coverage. Many people do not realize that carrying adequate insurance coverage is one of the most effective ways to protect themselves from lawsuits that would place their savings and property at risk of loss. Ensuring that your client carries adequate car insurance is one of the simplest ways you can help them ward off a lawsuit. Beyond increasing their car insurance limits, you may also want to discuss whether it would make sense for them to purchase an umbrella insurance policy. Umbrella policies act as a form of backup insurance to other types of primary casualty insurance policies. Essentially, if a client is involved in a car accident where the damages they caused exceed the limits of their car insurance policy, an umbrella insurance policy can step in and cover such excess liability. With both policies in place, there will be a large enough pool of insurance money that the insurance companies will have a much greater ability to settle any lawsuit against your client as a result of the car accident before it ends up in court where the plaintiff could seek payment from the client directly.
 
As part of your client’s estate planning review, you should discuss the limits of their car insurance policy and any umbrella policy that they may already have (or that they intend to purchase) and the types of protections that those policies provide. Adequate insurance can go a long way toward protecting their accounts and property from loss to a lawsuit as a result of a car accident.
 
Disability insurance. Clients should be reminded that in addition to the risks of being inadequately insured from a liability perspective, a car accident that results in their own injury could have both short- and long-term financial consequences from a disability perspective. Without the ability to engage in gainful employment, a family can suffer significant financial hardships in a very short period of time. Being unable to pay a mortgage, rent, car payments, utility bills, or healthcare expenses because of lost income can be devastating. Short-term and long-term disability insurance can therefore offer incredibly important protection against loss of income from such an accident. If your clients have not yet considered purchasing disability insurance to protect against this kind of risk, you may want to raise the topic with them sooner rather than later.
 
Personal Injury Settlements
In some cases, a personal injury settlement may be paid to your client in a lump sum. If your client has received such a settlement, it is important that you work with them to suggest prudent investment options that will protect the settlement funds from both the risk of major market losses as well as unnecessary diminishment from inflation. These funds should be protected and invested in a manner that will ensure that they are available to your client to provide for their needs, particularly when the client's needs have increased as a result of the injuries sustained in the accident.
 
Be Careful of Fraudulent Transfers
After a car accident where there are significant property damages and medical injuries, a client can be tempted to take steps to protect what they own if they fear that a lawsuit may result from the accident. But it is important to help your clients resist the temptation to begin transferring or retitling their property and accounts to friends or family in an effort to hide what they own to protect it from their creditors. In many states, taking such steps after an accident has occurred in which a client is liable is considered to be a fraudulent or voidable transfer that can be ignored by the courts.[1] In other words, even though a client may have made an otherwise legal gift or transfer of their accounts and property to someone else, the courts are likely to allow the party in a successful lawsuit against the client to seize the property that your client has transferred to someone else in an effort to avoid having it used to pay the judgment against them.
 
No, Revocable Trusts Do Not Protect a Client’s Property from Personal Lawsuits
A very common misconception is that if your client creates a revocable living trust for estate planning purposes, they have thereby protected their assets from lawsuits and creditors. Unfortunately, this is simply not the case. While it is possible to design a revocable living trust that will protect a client’s assets after they have died from the creditors and lawsuits of the named beneficiaries of their trust (usually their loved ones), revocable trusts in general offer no protection against the client’s own creditors or lawsuits filed against them. This is because the client has complete control over the property placed in their revocable trust. And because they retain the power to revoke the trust, a judge can order them to revoke the trust and use the trust property to pay their creditors and lawsuit judgments.
 
That being said, there are certain types of irrevocable trusts and other asset protection strategies that, if designed properly, can greatly enhance the level of protection a client can obtain for their property. However, these should be explored with the assistance of an experienced asset protection and estate planning attorney to ensure proper creation and implementation.
 
When it comes to protecting a client’s accounts and property, the time for taking the necessary steps is well before an accident ever occurs. Doing so will help your clients maximize the amount of asset protection that is available to them through purchasing insurance or designing estate planning features that have a much better chance of warding off potential lawsuits in the event of an accident.
 
We hope that we have given you some things to consider along with your clients that will help you encourage them to revisit their estate planning. Protecting a client’s hard-earned accounts and property is a worthwhile investment of time and effort. If you or your clients are not sure where to start, give us a call. We would be happy to help them take the next step in preparing for the perils that winter can bring.


[1] To date, twenty-four states have enacted or introduced model legislation referred to as the Uniform Voidable Transactions Act (Formerly Uniform Fraudulent Transfer Act). The full text is available on the website of the Uniform Law Commission at https://www.uniformlaws.org/committees/community-home?CommunityKey=64ee1ccc-a3ae-4a5e-a18f-a5ba8206bf49.

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