Super-rich Americans are using these 4 little-known techniques to protect their assets from lawsuits — should you use them, too?

Personal liability insurance

It's common for homeowners insurance and auto insurance policies to include liability insurance. But these policies often offer a limited amount of personal liability coverage.

One way the ultra-wealthy can protect themselves is to purchase additional personal liability insurance that goes beyond the coverage built into other policies. These are often referred to as “umbrella” policies and can provide additional coverage worth tens of millions of dollars.

Most homeowners insurance policies, for example, provide a minimum of $100,000 in liability coverage, according to the Insurance Information Institute. For the high-net-worth households, that may not cut it. But even if you're not wealthy and want more protection, you can talk to your insurer about increasing your liability coverage for an added fee.

Kiss your credit card debt goodbye

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Owning assets jointly

Owning assets jointly with a spouse, child or other family member may protect you from lawsuits to some degree. For creditors, pursuing jointly owned assets would mean having to file a partition action in order to acquire it outright, which can be costly and time-consuming. Plus, some states have laws protecting jointly owned property and assets in situations when one party is being sued.

While this is a strategy the super-rich can employ, it's an easy one for married couples to take advantage of, especially if they’re inclined to jointly own most major assets anyway.

Keep in mind, though, that you may need to make changes if certain assets are only in one person’s name. Laws about joint-ownership can also vary by state.

Trusts that are safe from lawsuits

Establishing a trust is a big part of estate planning for the wealthy. But even modest earners can use trusts to pass wealth on to any heirs. However, if your goal is to protect yourself from lawsuits, you'll need to make sure you're using the right legal tools.

With a revocable living trust, you maintain control over its assets while you're alive. But because of that, these trusts aren't protected from lawsuits. An irrevocable trust is a different story. Since you can't change an irrevocable trust, the assets within that trust are typically protected from lawsuits.

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Setting up an LLC

There can be tax benefits to setting up an LLC (limited liability company). But another benefit is the potential to protect your assets from lawsuits.

LLCs protect your personal assets from lawsuits filed against the business. If you operate a business that's registered as an LLC and damage is caused in the course of doing business, the impacted person or entity can only go after your LLC. Unless any personal property is listed as being part of the LLC, they can't go after your own assets.

However, there are costs and tax-reporting requirements to consider with an LLC. Plenty of non-wealthy people set them up every year, but it's a good idea to consult an accountant or financial adviser to see if this is a smart option for you. You should also know that each state has its own laws governing LLCs, so you'll need to make sure you're compliant if you decide to move forward.

Correction, Nov. 7, 2024: Households in the 90th to 100th percentile of usual income, as of 2022, had a median net worth of $2,556,200, not an average net worth of this amount.