Dangers to Your Wealth Negligence Examples
The following are a few real-world examples of lawsuits that could happen to you and, in turn, take your wealth. These are meant to motivate you to act now to protect your wealth. If you would like help mapping out your asset-protection plan, please contact our office at Kara@GoldenCrestFinancial.com.
Boats, Automobiles, Snowmobiles, Planes (other toys)
If you own a boat or Wave Runner, an automobile, snowmobile, plane, or other toy (4Runner), then you have the normal liability problems that go along with negligent driving of each.
While we all know it is not right to drink and drive, many people do it. This probably rings true for many people with wealth who like to go to dinner and have a bottle of wine. With blood-alcohol legal limits going down each year, it does not take much to be seen as legally drunk in the eyes of the law.
Clients with wealth should not stick their heads in the sand and have the “it won’t happen to me” syndrome when thinking about all these examples. If you drink and drive and have an accident, you will more than likely be sued personally and your assets will all be at risk.
If you simply drive negligently and cause harm to another, you will more than likely be sued and your assets will be at risk. This is not an issue for someone who rents or lives in a $75,000 home and has a net worth of less than $50,000. Negligent actions are a problem for clients with wealth; and if you have purchased this book, we, as authors, assume you have some amount of wealth you would like to protect.
If your teenage dependent is driving in a negligent manner and causes harm to another person, the owner and driver of the automobile, boat, Wave Runner, snowmobile, etc., is more than likely going to get sued with the same damage potential and shortfall of insurance problems illustrated in the previous examples.
Roccy DeFrancesco, JD, author of Retiring Without Risk had a very wealthy family friend who had a teenage child, a snowmobile, vacant property, and a big problem. The problem came from the fact that the child took a friend out for a ride on the snowmobile, hit a tree, and killed the friend. The parent had the typical $1,000,000 commercial liability coverage, but the lawsuit was for multi-millions. The parent ultimately had to dip into his own pocket and pay an additional $2,000,000 to settle the lawsuit and keep it from going to trial, where a jury verdict could have been much higher.
Most people with wealth who have asset-protection worries own their own home. Homes cause unique liability problems that many clients are not aware of; and, if they were, those clients would implement an asset-protection plan.
1) As a homeowner, you will typically throw a few parties for your friends each year. If you serve alcohol at those parties and one of your guests leaves the party after drinking too much, gets into a car accident, and kills the three passengers (or worse turns them into quadriplegics), guess who is going to get sued for negligence? You, the homeowner. Most people think that an umbrella liability policy of one million dollars will protect them; but, if you can be linked to a death or serious injury via negligence, your one-million-dollar umbrella is not going to go very far. After your insurance pays one million of the three–million-dollar verdict, the attorney for the plaintiff is going to go after all your personal assets.
2) While most homeowners think their property is in good repair, many times it is not. How many homeowners have repairs that have been put off for years? Many. If you have guests over to your home, you have a “duty” to keep the premises in “good repair.” This duty is heightened if you run a business out of your home. If you have a faulty handrail or other defects that could cause harm to a visitor, you have personal liability that is real and could put all of your assets at risk from a negligence suit.
It seems to be in vogue today to diversify one’s portfolio into real estate. When the stock market goes flat, investors look to real estate (many times rental property) as a way to spread out their investments.
Vacation rentals are nice to have, but they create a significant liability problem for the owners. As previously mentioned, when property is commercial in nature (operating a business in a building or owning a rental property), there is an increased duty of the property owner to keep the property in good repair.
Depending in which part of the country you live, you will have different problems. If you live in the northern part of the country, you may have the duty to make sure the property is in good repair when it comes to snow or ice removal, which creates the typical slip-and-fall personal injury case. If you live in California and your rental property has gone through an earthquake, the stability of the home might be an issue which could result in several defective conditions that could cause injury to your tenant.
Most clients own (title) their rental property in their own name; and if there is an injury to a tenant or someone visiting a tenant, the lawsuit will be against the client personally, which will put all of the client’s personal assets at risk.
The following is a classic example that we tell when doing asset-protection seminars. It always brings a smile to the audience because they can all relate, but the liability is real and one that needs to be protected against.
If you have teenage children, chances are at some point you will go out of town and your children you leave at home (the 15-17 year olds) will have a party or have friends over. Imagine telling your teenage child on Friday morning that you are going out that evening to see an out-of-town football game or play and that you won’t be back until sometime after midnight.
What happens Friday afternoon at school? Your child passes around a note to all his friends (which gets passed around to many non-friends) telling them that the party tonight is at his/her house because you are going to be out of town. The note also says that the party is not “BYOB” because you have plenty of alcohol in the house for the teenagers to drink!
Friday 5:00 p.m. comes, and you leave. Who is walking in the back door? Fifty teenagers looking to drink your alcohol and have a good time. What happens when midnight rolls around and everyone is told that the parents will be home shortly? The now severely drunk teenagers pile into their cars to drive home.
What happens next? Four of the teenagers who got into their car drove down the road and hit a tree. What kind of injuries do they sustain? The typical outcome is death, but that’s not what happens. Let’s assume they all become quadriplegics.
Now, let’s change the story. Assume the same fact pattern, but now assume that the drunk driving teenager with three passengers did not hit a tree but instead hit the local cardiologist who was driving home from a late dinner. Assume the cardiologist makes $1,000,000 a year and now cannot practice medicine for the next 30 years due to his/her injuries.
The first question you need to ask yourself is who is liable? The teenage driver? Sure. But that driver and his parents are poor and have no auto insurance. What about the homeowner where the party was held and whose alcohol was consumed? Absolutely. The homeowner is going to be sued, and the personal injury attorney is going to go after everything the homeowner owns, including their personal residence.
If you think you protected your assets by purchasing a $1,000,000 umbrella liability policy on your home, how helpful do you think that will be when you are sued for $10,000,000 plus in the above examples?
Summary of Examples
The previous examples should put all readers on notice that the treatment of a lawsuit is very real in this increasingly litigious society. You can take the attitude that it won’t happen to you (stick your head in the sand), or you can choose to be proactive to protect your wealth by contacting our firm to start down the road of becoming asset protected.