Orange County Business Journal

The Dunning Kruger Effect: You Don’t Know What You Don’t Know

(And once you realize what you didn’t know, well, it may be too late.)

Sara and Jonah Williams worked for over 30 years to build their fledgling business into a thriving franchise with stores throughout the nation. They thought they were protected by their thorough estate planning until the unthinkable happened. They were sued by a plaintiff seeking to recover millions of dollars in an unforeseen lawsuit.

The Williams contacted their estate planning attorney to find out if their estate plan protected their personal assets from this lawsuit. Unfortunately, their trust attorney only used the garden variety revocable living trust that provides no “firewall” protection from lawsuits. In the end, they were forced to settle for a king’s ransom, as they could not risk having a jury rule against them. The Williams just didn’t know what they didn’t know.

If their trust attorney had created an estate plan with “firewall” protections, which involved both conventional estate planning structures to maximize the amount one may pass along at death, as well as effective “blockers” to protect their trust’s assets, their assets would have been sufficiently protected. This would have encouraged a minimal and early settlement.

Affluent families and successful business owners are routinely targets for lawsuits, often devoid of legal merit, because the plaintiff and their lawyers know that the defendant, at the end of the day, will settle rather than remain embroiled in lengthy litigation. Without proper asset protection planning in place well before any legal claim, all could be lost.

Don’t let this happen to you. A new lawsuit is filed every two seconds in the U.S. Too many business owners and affluent families wait until they are sued or in trouble to inquire about protecting their assets. This is the Dunning Kruger Effect.

Asset protection is all about protecting your family and your legacy before the fact, not after the legal claim arises.

Even those with more moderate size estates can benefit from this form of planning. Removing the prospect of collectability from a legal judgment forces most plaintiffs to settle early and inexpensively, enabling clients to hold on to what they have worked so hard for over the years.

Working with a professional that can provide a comprehensive estate and asset protection can reduce death taxes and establish “firewall” protection to dissuade catastrophic lawsuits. This strategy offers more robust estate planning structures and discourages frivolous lawsuits and other opportunistic litigants. You now know what you should know!

Posted in Client Alert, Orange County Business Journal.