Wachbrit Weblawg - Estate Planning and Elder Law

A Monthly View of Big Verdicts

Every month, the California Bar publishes a list of lawsuit verdicts across the state.  Because many people wonder how catastrophic a judgment against them might be, I'm sharing a few.

Here are the two most striking May, 2007 judgments:

Premises Liability

You can be liable because you own the property.

Judgment: $4,057,354

Vehicle Negligence

Remember that with "joint and several liability" even if you are only 1% at fault you may have to pay 100% of the judgment.

Judgment:  $23,295,000

There were other remarkable judgments  in January, February, March and April, 2007.  There will be more in June, July, August and the months and years ahead.

You Can Plan Today to Protect Assets from Potential Creditors

Your father, at 87, should have given up his license and stopped driving a few years ago.  So while you were sad to learn that he'd gotten into a car accident, you weren't surprised.  What did surprise you and your mom was that their auto insurance limits of $50,000 were not nearly enough to pay for the damage.  Now your mom and dad are faced with losing their home.  Is there anything they can do?  Not safely.  Once the accident has occurred, it's too late to increase insurance limits and its too late to protect assets.  "Fradulent Transfer" law is the federal law that protects creditors from debtors giving away their assets when the creditor comes to get paid.

But what about you?  Your teenaged son is driving your car and you know he's inexperienced.  He hasn't been in an accident, but some of his friends have and you suspect he drives too fast.  What can you do?  A lot.  When you plan before a disaster occurs, you can legally take effective protective steps.

L.A. Litigation is Out of Control

Los Angeles is the worst jurisdiction in the entire United States for legal fairness.  What's more, the entire state of California is unfair to litigants. 

The U.S. Chamber of Commerce's Institute for Legal Reform found that California, West Virginia, Louisiana, Illinois and Texas are the worst states in the country for legal fairness.  This is a drop from our position as the fifth worst state in 2005 and the sixth worst in 2004.

But the really striking news is that ahead of Metropolitian New York and Jefferson County (the class action capital of the country), Los Angeles was rated as the absolutely most unfair place to get sued in the country.  One in five attorneys surveyed nationwide felt the Los Angeles legal system is unfair, primarily due to "biased judgment."

California ranked particularly poorly in non-economic damages (pain and suffering, punitive, that sort of thing) and jury predictibility.

Read on to see how the states and cities were measured.

One Car Accident Can Destroy Family Wealth

Many Californians are underinsured.  Minimum limits on auto policies of $15,000 and $50,000 will not cover significant accidents.  Even with maximum coverage, a car accident can completely wipe out a family's resources.  Two verdicts reported in this month's California Bar Journal:

• Verdict to pedestrian struck by vehicle, causing serious leg injuries: $2,200,000
• Verdict for "chain-reaction freeway accident" that caused neck and back injuries in plaintiff:  $2,916,712

Depending upon the cause of the accident, auto insurance may not even have covered the defendants in these cases.  What's worse, in the chain-reaction accident, a driver who was only 1% at fault can be forced to pay the entire $3 million verdict if he or she is the one with money.

For some strategies to consider, continue reading.  ClientCare members, look for your special benefit!

Eminent Domain Brought to Justice Souter's Home

Last year in a controversial blow to the rights of homeowners, the United States Supreme Court ruled that governments can condemn individual properties solely to make way for private development.  While eminent domain has long been a privilege of governments, its exercise had been restricted to public uses, like freeways.

Californians (in many cases, the most liability-exposed homeowners in the Country)  are protected by a state constitutional limitation on eminent domain.

Nevertheless, proponents of civil and economic liberties in all states are watching activists in Concord, New Hampshire.  They have obtained the 25 signatures necessary to put condemnation of the private residence of Justice Souter (one of the judges who voted in favor of government expansion) on the ballot.

To read more, go to Activists Seek to Evict Souter From Home.

Simple Steps to Avoid Identity Theft

Compliments of local financial planner Jeff Sorensen, here are some suggestions on how to minimize the chances of identity theft, based partly on recommendations from the Federal Trade Commission at Identify Theft Information. 

10 Steps to Protect Your Identity

1.  Pay the fee—often reversible if you maintain a sufficient balance—to see your checks (viewing them online may be free).  Even a cursory review should detect cases where a forger has never seen your signature or handwriting.

2.  Never have your Social Security Number printed on your checks.  Whenever absolutely necessary, write it on.  In general, resist supplying your Social Security Number. 

New Protections For IRAs and 401Ks

California has long been a "creditor-friendly" state, which means that "debtors" or defendants have difficulty preserving any of their assets from a catastrophic lawsuit.

I will never forget the elderly couple who came to see if I could help them protect their home.  The husband was at fault in an auto accident -- perhaps he should have stopped driving sooner -- and they were facing a lawsuit with damages far above the $50,000 limit provided by their auto insurance policy.  Under California law, nothing they owned was protected.  Their paid-off home, their savings:  everything could go to pay off the lawsuit.  And the options I could offer them were dramatically reduced from what I could have offered had they come to me before the accident.

The recent federal Bankruptcy Act of 2005 has changed the rules for better and worse.  But planning ahead still makes sense.  The good news is that we now have protection for Retirement Accounts in all states, including California. 

You may be asking "What does bankruptcy have to do with me?  I'm worried about a car accident, not bankruptcy."  Well, bankruptcy law forms the backdrop against which settlements are negotiated because both parties know that if they don't settle, the bankruptcy court will decide how much the plaintiff gets and how much the defendant gets to keep.

The law is good and bad news for Californians who don't want to lose everything to a single lawsuit. 

Here's the bad news: Californians with income above the median (currently $69,000 for a family of four) can rarely file a "clean slate" Chapter 7 Bankruptcy protection.    Instead, these families will be forced into Chapter 13 in which you have to use all of your disposable income for five years to pay debt.  Even worse is Chapter 11 for those whose debts exceed about $900,000; you can be required to use your disposable income for 11 years.  (And don't think that disposable income means what it sounds like.  The court expects you to live on much less than most people consider an average standard of living.)

Moving to Florida or Texas (a.k.a. "The O.J. Simpson Strategy") to get the benefits of their more generous laws is less doable now because you can't rely on the full protection unless you've owned your home there for at least 40 months.

Here's the good news: your ERISA-qualified plans (401K s and the like) are fully protected, even if they only have one member (as in a small business).  For those of you who've been reading my newsletters for awhile, this is even better news than the Yates case!   There is no limit to what can be protected in a qualified plan.

Non-qualified retirement savings (mostly IRAs) are protected up to $1 million.  But if the non-qualified plan is a "roll-over" from a qualified plan (for example, when you switched employers, you rolled over your 401K balance into an IRA), it is fully protected.

Inherited IRAs are probably not protected, which underscores the importance of naming your trust, rather than your spouse or child as the beneficiary of your IRA.  (Please note that this advice only applies to clients of the Law Office of Diedre Wachbrit, APC.  Check with your attorney to see if your trust has been drafted to protect IRAs from creditors and taxes.)

Other plan ahead strategies are also available.  So if asset protection is important to you, brush up on this new law.  An ounce of prevention is worth a pound of cure.