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Many classes of assets are considered exempt assets.  Exempt assets are simply those assets that a creditor cannot to “look to” in satisfaction of a judgment.  For example, if Tom wins a lawsuit against Jerry, Tom is now a judgment creditor and Jerry is a debtor.  In other words, Jerry owes Tom money.  In an effort to collect the money he is owed, the courts can permit Tom to seize certain property owned by Jerry and sell it to settle the debt–to satisfy the judgment against Jerry.  Jerry should definitely have consulted an asset protection lawyer.

What Tom Can’t Get

Some assets have built in asset protection features.  That simply means that some are beyond the reach of judgment creditors.  Build in asset protection features are provided by state law, so the protection afforded from state to state varies drastically.

Consider the case of a California resident moving to New York.  Let’s call this pretend person Rita.  Assume that Rita has an annuity that she created in California before moving.  California asset protection laws provide that unmatured annuities are exempt from the claims of debtors to the extent of $9,700 of their loan value.  Matured annuities are exempt to the extent reasonably necessary to support a family.

New York asset protection laws, on the other hand, define annuities as spendthrift trusts.  The effect of that definition is that judgment creditors cannot touch any part of an annuity contract.  Clearly, New York provides better asset protection for annuity contracts.  So Rita is lucky that she’s moving, right?

Exporting Automatic Asset Protection Rules

Automatic asset protection rules cannot be transported!  In Rita’s case, if she loses a lawsuit in New York, the judgment creditor will be able to come after her annuity.  Even though Rita lives in New York, her annuity was created in California and it is governed by California law.  Even though in this case that fact works against Rita, the moral of the story is that automatic asset protection laws cannot be exported to other jurisdictions.

In simple terms, this means that moving to a state with very good automatic asset protection rules does nothing to protect you, assuming that your accounts (e.g. IRAs, annuities, life insurance policies, etc.) were created and exist under the laws of another state.  People make very bad assumptions about the effect of moving to a new state all the time, and it ends up costing them.  Don’t be one of those people.  Contact Lodmell & Lodmell today to see how we can serve your needs.

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