An Overview of North Carolina Asset Protection Laws

Jackie Bedard
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Attorney, Author, and Founder of Carolina Family Estate Planning

If you’ve accumulated assets and wealth, you may find yourself worrying about losing it all to an unfortunate crisis or innocent mistake. Asset protection planning is about mitigating your risks and protecting your wealth.

Potential Risks to Your Assets:

Threats to your assets can come from different sources, including:

  • Lack of appropriate insurances for proper protection;
  • Overpaying on taxes due to lack of or inefficient planning;
  • Not having a plan for health care and long-term care costs during retirement;
  • Someone getting injured at your home, vacation property, or rental property and suing you;
  • Causing a dog bit or car accident that results in serious injuries or death;
  • Your spouse or teen driver causing a car accident;
  • A professional malpractice lawsuit if you are a doctor, dentist, lawyer, or similar;
  • A business lawsuit due to an injured employee, a faulty product, breach of contract, or similar; or
  • Crippling medical debts from an unexpected illness.

Some Assets Are Protected by Law

North Carolina law and Federal law offer protection to certain assets as a matter of public policy—in other words, the government believes that if you were left totally penniless, you would potentially become a burden on the state, so certain assets are protected from lawsuits or claims.

Retirement Plans

Retirement plans such as 401(K), Individual Retirement Accounts (IRAs), Roth Individual Retirement Accounts (Roth IRAs), and other qualified retirement plans may be protected. However, it is important to note that this protection is rapidly eroding. In 2013, the United States Supreme Court ruled that inherited retirement plans are not protected. Another recent bankruptcy case found that a retirement plan received from an ex-spouse during a divorce is not protected.

Certain Types of Real Estate

In very specific circumstances, real estate may be protected. If a married couple owns real estate as “tenants by the entirety,” then the real estate is protected from the creditors of just one spouse. For example, if a married couple owns their home as tenants by the entirety and the husband is sued, the home is protected if the wife is not a part of the lawsuit.

Be warned that this has significant limitations: (1) It’s only for married couples; (2) The real estate is not protected if both husband and wife are a party to the lawsuit or claim; (3) The deed must be set up correctly; and (4) After the death of a spouse, the real estate is no longer protected for the surviving spouse. Also, bear in the mind that automobile accidents are a common cause for lawsuits. And in our experience, even if only one spouse is in the car and causes an accident, due to how married couples generally title and manage their automobiles, both spouses are likely to become parties to any lawsuit arising from the accident.

The North Carolina Homestead Exemption (see NCGS §1C-1601(a)(1)) protects up to $35,000 of equity in a home for a single individual or $70,000 of equity for a married couple with a joint creditor. In certain instances, for individuals over the age of 65, this protection may increase to $60,000.

Life Insurance

Life Insurance Policies are protected by the North Carolina Constitution and North Carolina statute. If set up properly, any cash build up in a life insurance policy will be protected from your creditors' claims and upon your death, will pass to your family protected from your creditors' claims.

We strongly recommend additional planning and professional guidance to (1) ensure that the policy is structured correctly to be eligible for protection; and (2) to make sure that the policy or proceeds from the policy are also protected from potential creditors of your surviving spouse or children’s.

529 College Savings Plans

529 Plans have some protection under North Carolina Law (see NCGS §1C-1601(a)(10)) but are subject to some specific limitations. A maximum of $25,000 in 529 Plans may be protected if all requirements are met. Note that this is an owner maximum, not a beneficiary maximum. In other words, you, as the parent can only protect $25,000 total (not $25,000 per child.) In addition, any contributions made within one year of a bankruptcy filing may be at risk unless the contributions were consistent with your past pattern of contributions.

Disability Income, Alimony, and Child Support & Other Exemptions

Disability Payments may be protected under North Carolina law (see NCGS §1C-1601(a)(8)) if they are reasonably necessary for your support. However, they remain subject to claims from funeral, legal, medical, dental, hospital, and health care charges relating to the accident or injury that resulted in the disability payments.

Alimony and Child Support are protected under North Carolina law (see NCGS §1C-1601(a)(12)) to the extent that they are reasonably necessary for you or your dependent child.

There are other nominal miscellaneous exemptions the limits of which are relatively low and don’t provide significant protection such as $3,500 of value in an automobile, household furniture and possessions up to $9,000, and tools for a profession or trade of up to $2,000.

Assets that are NOT Protected

While the following is not intended to be an exhaustive list, make note that the above list of assets does not include many common forms of assets. The following asset classes are not protected:

  • Jointly or individually owned bank accounts;
  • Jointly or individually owned investment and brokerage accounts;
  • Jointly or individually owned stocks, bonds, or similar;
  • Jointly or Individually owned real estate (above the home exemption);
  • Personal property in excess of the low asset limits outlined above;
  • Vacation property;
  • Rental property;
  • Boats, planes, jets, or other aircraft;
  • Businesses operated as a sole proprietorship.

Are You a Sitting Target?

Unfortunately, some individuals have a higher likelihood of being sued due to the nature of their professional or financial stature—in other words, those that have something to lose.

In our years of experience working with thousands of clients in the Wake County area, we find that asset protection planning is particularly important if any of the following apply:

  • You own a home and have an estimated net worth of $1M or more;
  • You own vacation property;
  • You own rental property;
  • You are high income-earning professionals;
  • You are high income-earning business owners;
  • You own a business with significant value.

Don’t leave yourself or your loved ones stuck dealing with the financial aftermath that a lawsuit, medical bills or long-term care costs, or unexpected tragedy can bring to your family. Contact Carolina Family Estate Planning today at (919) 443-3035 or fill out our online form to speak with someone about registering for a seminar or a Vision Meeting. You may also wish request a free copy Jackie Bedard’s book, Estate Planning Pitfalls: The Twelve Most Common Threats To Your Estate & Your Family’s Future.