Limits of extra auto liability insurance would thrill other party

Q: I carry extra auto liability insurance on my vehicles to provide better coverage in case of an accident. If I get sued after an accident, and the verdict exceeds my extra coverage, where does the additional money come from? Can the claimants access my home, bank account or retirement? Should I keep the additional liability coverage?

A:

If you are held liable for more than your insurance covers, you will be personally liable.

But under Texas law, your homestead, retirement accounts, life insurance policies, annuities and 529 accounts, as well as certain items of personal property, are all exempt and cannot be taken from you in that type of lawsuit.

The benefit of the extra liability coverage is that nearly all lawyers who would sue you on behalf of a claimant will be thrilled to recover the limits of your extra coverage. That would be all they would want to collect. It would be trouble to sue you personally, and they know that most people in the state own only assets that are exempt in a lawsuit.

On the other hand, the fact that you have the extra coverage might be a red flag that you actually have significant other assets you are trying to protect. Whether a plaintiff ’s lawyer would go after you personally depends on many factors, including how large your extra liability coverage is, how terrible the accident was that caused the lawsuit, what you did to cause the accident and the value of your other assets (which might be knowable simply by where you live and work, the

kind of cars you drive, the way you live your life and your profile in the community).

I think extra liability coverage is a good idea.

Q: My mother died and one of her large accounts was payable to my sister. We are a close family, and she wants to share the account with us. How can she do this without having to pay gift taxes? I know she can make gifts of $15,000 once a year tax free, but the amounts would be much greater.

A:

Your sister can give each of her siblings $15,000 each year, and if she is married, her husband

can join in the gifts, raising the annual total to $30,000. And if you and the other siblings are married, the gifts can be made to both spouses, again doubling the annual gifts, to $60,000.

If your sister exceeds the annually excluded gift tax amount, there is virtually no chance she will owe gift taxes because she can give away an additional $11.7 million tax free, and her husband

can join her, if he is willing to do so, for another $11.7 million.

Also, your sister might be able to disclaim part of the account, allowing it to pass to all the siblings as desired with no tax consequences.

Talk to a tax lawyer.

The information in this column is intended to provide a general understanding of the law, not legal

advice. Readers with legal problems, including those whose questions are addressed here, should consult attorneys for advice on their particular circumstances. Ronald Lipman of the Houston law firm Lipman & Associates is board-certified in estate planning and probate law by the Texas Board of Legal Specialization. Email questions to stateyourcase@lipmanpc.com