Potential exposure beyond the limits of liability insurance

[superjtrdr]

Texas

My parents had an at fault auto accident almost a year ago and just received a letter from their insurance company. Basically the insurance company is trying to settle with the plaintiff who seemed fine after the accident. The letter suggest there is potential for exposure beyond the policy limits. So it was kind of a heads up letter. If my parents have all their assets under Enhanced Life-Estate Deed aka Lady bird deed are those assets protected from exposure to liability?

 

[FlyingRon]

Do they or do they not? If you try to move things now, the transfer will likely be regarded as fradulent.

There's a pretty hefty homestead exemption in Texas to begin with.

 

[adjusterjack]

TX Property statute. 41.001 & Prop. 41.002 - Unlimited equity in a homestead, but cannot exceed ten acres in a city, town, or village, or 100 acres (200 acres for family) elsewhere. Sale proceeds are exempt for six months after the sale. 41.005, 41.021 to 41.023 - If property acreage is larger than what is covered by the homestead exemption, filing of a homestead declaration might be necessary.

https://law.justia.com/codes/texas/2019/property-code/title-5/subtitle-a/chapter-41/

 

[zddoodah]

If my parents have all their assets under Enhanced Life-Estate Deed aka Lady bird deed are those assets protected from exposure to liability?

It would be impossible for your parents to have all of their assets held in this manner. As to those assets held in the stated manner, that manner of holding would not prevent them from being subject to a judgment. However, as both of the prior responses mentioned, Texas provides significant protection for one's personal residence (and, for this and other reasons, it is a bit of a haven for deadbeats).

Something to keep in mind: an auto liability insurer has a duty to attempt settlement within policy limits if at all possible. Your parents should contact the insurer to discuss the matter (or, if the matter is in litigation, they should speak with their attorney), but it's entirely possible that the sending of the letter was a standard practice and might not be a true indication that an excess judgment is reasonably likely.

 

[PayrollHRGuy]

but it's entirely possible that the sending of the letter was a standard practice and might not be a true indication that an excess judgment is reasonably likely.

That is what I was going to suggest. I think it may well be boilerplate language.

 

[Litigator22]

Texas

My parents had an at fault auto accident almost a year ago and just received a letter from their insurance company. Basically the insurance company is trying to settle with the plaintiff who seemed fine after the accident. The letter suggest there is potential for exposure beyond the policy limits. So it was kind of a heads up letter. If my parents have all their assets under Enhanced Life-Estate Deed aka Lady bird deed are those assets protected from exposure to liability?

This won't help much, but the problem I see with your parents claiming protection against a potential attaching creditor is that an enhanced life estate deed is completely revocable and modifiable during the life of the grantor(s)!

Hence, there appears the question of whether or not an attaching creditor could void the transaction restoring the grantors to fee simple ownership. (Noting that I am speaking only in terms of equity over and above the homestead exemption and aside from any issues of an attempt to avoid creditors.)

I was hoping to find some pertinent decisions under the strong arm or clawback clause of the Bankruptcy Code (544 a) - a proviso that grants the trustee the powers of an attaching creditor - but find nothing to date. Perhaps others here can be more helpful.

Just one final note. If you parents were to presently convert the transaction by granting a straight or non-revocable life estate, then as Z mentions they could be facing the repercussions attending a fraudulent transfer, meaning one aimed at avoiding creditors. But again as Z also offers the hefty homestead exemption will probably render this discussion entirely useless.

 

[ALawyer]

At this point it appears that all their insurance company has done is WARN them of the possibility that a claim might exceed their policy limits. While anything is of course possible, they should speak with an experienced personal injury attorney to really assess the likely potential for a judgment in excess of the policy limits before engaging in expensive (and too often futile) efforts to shield assets.

If one's policy limits are high enough defendants usually come out okay as nearly all cases are settled within policy limits. Of course if there was a catastrophic injury another lawyer could advise them as to asset protection alternatives that they might engage in that would not be regarded as fraudulent transfers or defrauding creditors.

If anything this stresses the importance for people to pay a little extra to have high policy limits and/or an umbrella policy.