Automobile Liability and Asset Protection
My original plan this week was to discuss asset protection issues for doctors, and other professionals, in this entry. However, last weekend on my way to Gainesville to watch the Gators play, I happened to pass by two different automobile accidents. Then, this week there have been two accidents outside my office window and another one around the corner on my way home.
All of these car crashes reminded me of an event involving one of my clients earlier this year, and is a good example of the overlap between estate planning and asset protection. After her accident, she and her husband called to thank me for discussing during our estate planning conferences the proper titling of their automobiles to minimize potential exposure of their assets to lawsuits that might be brought against them for accidents. As a result of the re-titling of their automobiles, when she caused the accident, the limit of their liability insurance coverage was also the limit of their exposure, so none of their assets were at risk. Had they not changed the titling of their automobiles, it is highly probable that substantial assets would have been at risk to a lawsuit by the injured party. The moral of this story is that proper titling of assets can be a very important asset protection technique, that doesn't involve spending a lot of time or money.
So, what do we mean when we talk about “proper” titling for automobiles? This discussion will focus on individual and family issues with titling of automobiles. We will leave for another day issues involving limiting liability exposure for businesses and business owners who use motor vehicles in the operation of a business and its activities. Those issues are far more complex, and the solutions beyond more than a cursory discussion in this kind of presentation.
“Proper” titling depends on what are your priorities.
My professional opinion is that motor vehicle liability prevention planning should be a high priority for everyone, but especially for those who own assets that are not otherwise exempt from the claims of creditors. In the future we’ll spend quite a bit of time, and probably multiple entries on assets that are exempt from creditors’ claims. If you would like to get a quick overview of those assets that are statutorily exempt from creditors’ claims, you can review my white paper on exempt assets at my website. For this discussion, we’re going to focus on non-exempt assets.
Non-exempt assets, we’ll define for now as all assets that are not exempt from creditors’ claims by statute – federal or state. Practically speaking we are talking about stocks, bonds, and other marketable securities that are titled individually to one spouse or jointly with a spouse or others, and real estate (other than homestead) that is also owned by one spouse individually, or jointly with a spouse or others. This definition includes stock of closely held companies and small businesses.
The problem that I often see with new clients is that their automobiles are owned jointly by both spouses, or perhaps a parent will own an automobile jointly with a child. Such titling of automobiles, with joint ownership, is quite dangerous (from a liability perspective), and with one very limited exception, should never happen. The limited exception involves those who have an elderly parent who is applying for or is receiving Medicaid benefits for nursing home care, which I will discuss more in a later post.
The cause of the problem is that under Florida law, the owner of an automobile is financially responsible for a permissive driver’s negligence – subject to certain limitations that we’ll discuss. For parents of minor children (under 18 years of age) the problem is compounded. An individual parent who signs a contract with the State of Florida to permit a minor to receive a driver’s license is absolutely responsible for any and all damage caused by the minor’s negligence.
Owner liability arises out of a legal doctrine called the “Dangerous Instrumentality Doctrine.” This doctrine provides that the owner of a dangerous instrumentality is liable for the negligent acts of a person who uses it with the owner’s actual or implied consent. In Florida, the doctrine extends to the negligence of someone who borrows the vehicle from someone else who had permission to borrow the vehicle from the owner.
There is one limitation on the owner’s potential liability for damages and injuries caused by someone driving the owner’s auto that is provided by Florida law. By statute (Fla. Stat. Section 324.031(9)(b)(3)), if the driver other than the owner has a least $500,000 of liability insurance coverage, an individual owner is only liable for up to $100,000 per person and up to $300,000 per incident for bodily injury and up to $50,000 per incident for property damage. If the driver does not have liability insurance coverage in that amount, then the owner can be liable for an additional $500,000 in economic damages, which amount can be reduced further by any amounts the injured party actually collects from the driver or his insurance company. So the maximum liability of an owner for damages caused by a permissive driver is $800,000.
It is unclear whether the statute applies to joint owners, because the actual language used in the statute is “an owner who is a natural person.” Since it does not clearly cover joint owners, it is unclear whether the $800,000 limit on liability will apply to both owners to create a joint liability of $1,600,000. The permissive driver has unlimited liability for damages caused by the driver’s negligent driving.
The above referenced statute does not limit the owner’s liability for the owner’s own negligence, including “negligent entrustment,” or for a parent agreeing to be responsible for a minor child’s driving. The statute does not relieve the owner of liability for negligently allowing someone who the owner knew or show have known, or had reason to know that the person borrowing the car was incompetent, unfit, inexperienced, or reckless, so that the entrustment of the automobile to that person created an appreciable risk of harm to others, and that the harm to the injured victim was caused by the negligence of the owner when entrusting the automobile to the driver.
The bottom line is that allowing someone other than the owner of the automobile to drive it creates potential liability for the owner arising out of accidents caused by the driver.
Why is joint ownership a “bad” thing for asset protection purposes? As you can see from the above referenced statute, there is a statutory limit that may be eliminated with joint ownership, or may subject the joint owners to double the liability exposure of a single owner. But there may be a much greater problem.
If both spouses own an automobile jointly, regardless of what the ultimate amount of liability may be in a given situation, the spouses, through their joint ownership of the automobile have exposed all of their jointly owned assets, as well as all of the assets owned by either of them individually (other than assets otherwise exempt from creditors’ claims), to satisfying the judgment of the injured parties.
Florida is one of only 12 states that provides a form of joint ownership of property between husband and wife called tenancy by the entireties. It’s a special form of ownership that considers the ownership to be by the spousal “unit,” rather than by two spouses. Florida law does not allow a creditor of one spouse to reach the assets owned by both spouses as tenancy by the entireties. (For a more detailed discussion of tenancy by the entireties and other forms of joint ownership, you can refer to my website article on the asset protection aspects of titling assets.
If the spouse who owns the car is driving it, and an accident occurs for which the driver is responsible, only the driver’s assets are at risk. The other spouse’s assets are not at risk. Assets owned as tenants by the entireties are not at risk. But if the automobile is owned jointly by both spouses, then not only will the driver’s assets be at risk, all of the other owner-spouse’s assets will be at risk, and all of the assets owned as tenancy by the entireties will be at risk. From an asset protection perspective, that’s bad!
The hard and fast rule in my household is that I do not drive the automobile that is titled in my wife’s name, and she does not drive the auto that is titled in my name. In our 18 years of marriage, I have never driven my wife’s vehicle. She has only driven mine about twice in that 18 years.
Beyond the concerns with asset protection, there really is no reason to title automobiles as tenancy by the entireties or otherwise jointly by spouses. Under the Florida Probate Code, a decedent’s automobiles are considered exempt assets with respect to probate, and pass automatically to the surviving spouse or, if none exists, to the decedent’s surviving children. (Fla. Stat., Section 732.402(2)(b)). Accordingly, there is no real reason to jointly title an automobile between spouses.
For those with teenage children, the problem is slightly different, and more difficult to deal with. When that minor child receives his or her driver’s license, someone, usually one of the parents, has signed a contract with the State of Florida agreeing to be completely responsible and assume all the liability for the acts of the child while operating a vehicle, regardless of who owns the vehicle. The question arises how to provide for the minor child’s insurance coverage? Should the child have his or her own insurance policy, or should they be insured on the parents’ policy.
Insuring the child through the parents’ policy is usually much more expensive because of the parents’ higher limits. Providing the child with his or her own policy with lower limits, from an asset protection perspective, is a mistake. In Florida, parents are liable for their children’s negligent operation of a vehicle, perhaps even after the child turns 18. If a child is driving under the direction of an adult parent, such as running errands for the parent, then the parent can be held liable for the negligent acts of the child even after age 18. If the child is involved in an accident with a separate lower limits policy, even if the vehicle is in his own name, and the child is running an errand for the parents, then all three people may be liable for the accident, and sued. Because the child owned the auto and had a separate insurance policy, his policy will answer first. If it has low limits, and the damages are significant, then the injured parties will pursue the parents for the amount of damages in excess of the child’s policy limits. For this reason, it may be preferable to have the children on the parents’ insurance policy, even after they are 18 if they are living at home with the parents, and even if it is more expensive.
What About Boats?
Different rules apply with respect to boats. (Fla. Stat., Section 327.32). The owner of a boat is not liable for the negligent operation by a non-owner, unless the owner is negligent in entrusting the boat or is physically on the boat when the injury or damage occurs (even if below deck and asleep). The spouse who normally drives the boat should be the owner.
Airplanes?
An airplane has been ruled to be a dangerous instrumentality by the courts. The owner of an airplane is deemed the agent for whomever he or she permits to pilot the plane. The owner is also vicariously liable for the action of the pilot and any injury caused by the negligent use of the airplane.
Conclusion
Proper titling of automobiles, boats and airplanes may be a significant issue regarding the protection of your assets from liability that can arise from the operation of a motor vehicle. For business owners the potential liability issues are much greater, and much more detailed planning may be required to ensure that motor vehicles are properly titled to minimize the likelihood that one accident could bankrupt the company. When dealing with the titling of ownership, you should always examine who will be operating the vehicle and how will it be used, whether personal or business use. If we can help you make sure you have minimized the potential liability for your household or business, please call us to schedule an appointment to discuss the matter.
All of these car crashes reminded me of an event involving one of my clients earlier this year, and is a good example of the overlap between estate planning and asset protection. After her accident, she and her husband called to thank me for discussing during our estate planning conferences the proper titling of their automobiles to minimize potential exposure of their assets to lawsuits that might be brought against them for accidents. As a result of the re-titling of their automobiles, when she caused the accident, the limit of their liability insurance coverage was also the limit of their exposure, so none of their assets were at risk. Had they not changed the titling of their automobiles, it is highly probable that substantial assets would have been at risk to a lawsuit by the injured party. The moral of this story is that proper titling of assets can be a very important asset protection technique, that doesn't involve spending a lot of time or money.
So, what do we mean when we talk about “proper” titling for automobiles? This discussion will focus on individual and family issues with titling of automobiles. We will leave for another day issues involving limiting liability exposure for businesses and business owners who use motor vehicles in the operation of a business and its activities. Those issues are far more complex, and the solutions beyond more than a cursory discussion in this kind of presentation.
“Proper” titling depends on what are your priorities.
My professional opinion is that motor vehicle liability prevention planning should be a high priority for everyone, but especially for those who own assets that are not otherwise exempt from the claims of creditors. In the future we’ll spend quite a bit of time, and probably multiple entries on assets that are exempt from creditors’ claims. If you would like to get a quick overview of those assets that are statutorily exempt from creditors’ claims, you can review my white paper on exempt assets at my website. For this discussion, we’re going to focus on non-exempt assets.
Non-exempt assets, we’ll define for now as all assets that are not exempt from creditors’ claims by statute – federal or state. Practically speaking we are talking about stocks, bonds, and other marketable securities that are titled individually to one spouse or jointly with a spouse or others, and real estate (other than homestead) that is also owned by one spouse individually, or jointly with a spouse or others. This definition includes stock of closely held companies and small businesses.
The problem that I often see with new clients is that their automobiles are owned jointly by both spouses, or perhaps a parent will own an automobile jointly with a child. Such titling of automobiles, with joint ownership, is quite dangerous (from a liability perspective), and with one very limited exception, should never happen. The limited exception involves those who have an elderly parent who is applying for or is receiving Medicaid benefits for nursing home care, which I will discuss more in a later post.
The cause of the problem is that under Florida law, the owner of an automobile is financially responsible for a permissive driver’s negligence – subject to certain limitations that we’ll discuss. For parents of minor children (under 18 years of age) the problem is compounded. An individual parent who signs a contract with the State of Florida to permit a minor to receive a driver’s license is absolutely responsible for any and all damage caused by the minor’s negligence.
Owner liability arises out of a legal doctrine called the “Dangerous Instrumentality Doctrine.” This doctrine provides that the owner of a dangerous instrumentality is liable for the negligent acts of a person who uses it with the owner’s actual or implied consent. In Florida, the doctrine extends to the negligence of someone who borrows the vehicle from someone else who had permission to borrow the vehicle from the owner.
There is one limitation on the owner’s potential liability for damages and injuries caused by someone driving the owner’s auto that is provided by Florida law. By statute (Fla. Stat. Section 324.031(9)(b)(3)), if the driver other than the owner has a least $500,000 of liability insurance coverage, an individual owner is only liable for up to $100,000 per person and up to $300,000 per incident for bodily injury and up to $50,000 per incident for property damage. If the driver does not have liability insurance coverage in that amount, then the owner can be liable for an additional $500,000 in economic damages, which amount can be reduced further by any amounts the injured party actually collects from the driver or his insurance company. So the maximum liability of an owner for damages caused by a permissive driver is $800,000.
It is unclear whether the statute applies to joint owners, because the actual language used in the statute is “an owner who is a natural person.” Since it does not clearly cover joint owners, it is unclear whether the $800,000 limit on liability will apply to both owners to create a joint liability of $1,600,000. The permissive driver has unlimited liability for damages caused by the driver’s negligent driving.
The above referenced statute does not limit the owner’s liability for the owner’s own negligence, including “negligent entrustment,” or for a parent agreeing to be responsible for a minor child’s driving. The statute does not relieve the owner of liability for negligently allowing someone who the owner knew or show have known, or had reason to know that the person borrowing the car was incompetent, unfit, inexperienced, or reckless, so that the entrustment of the automobile to that person created an appreciable risk of harm to others, and that the harm to the injured victim was caused by the negligence of the owner when entrusting the automobile to the driver.
The bottom line is that allowing someone other than the owner of the automobile to drive it creates potential liability for the owner arising out of accidents caused by the driver.
Why is joint ownership a “bad” thing for asset protection purposes? As you can see from the above referenced statute, there is a statutory limit that may be eliminated with joint ownership, or may subject the joint owners to double the liability exposure of a single owner. But there may be a much greater problem.
If both spouses own an automobile jointly, regardless of what the ultimate amount of liability may be in a given situation, the spouses, through their joint ownership of the automobile have exposed all of their jointly owned assets, as well as all of the assets owned by either of them individually (other than assets otherwise exempt from creditors’ claims), to satisfying the judgment of the injured parties.
Florida is one of only 12 states that provides a form of joint ownership of property between husband and wife called tenancy by the entireties. It’s a special form of ownership that considers the ownership to be by the spousal “unit,” rather than by two spouses. Florida law does not allow a creditor of one spouse to reach the assets owned by both spouses as tenancy by the entireties. (For a more detailed discussion of tenancy by the entireties and other forms of joint ownership, you can refer to my website article on the asset protection aspects of titling assets.
If the spouse who owns the car is driving it, and an accident occurs for which the driver is responsible, only the driver’s assets are at risk. The other spouse’s assets are not at risk. Assets owned as tenants by the entireties are not at risk. But if the automobile is owned jointly by both spouses, then not only will the driver’s assets be at risk, all of the other owner-spouse’s assets will be at risk, and all of the assets owned as tenancy by the entireties will be at risk. From an asset protection perspective, that’s bad!
The hard and fast rule in my household is that I do not drive the automobile that is titled in my wife’s name, and she does not drive the auto that is titled in my name. In our 18 years of marriage, I have never driven my wife’s vehicle. She has only driven mine about twice in that 18 years.
Beyond the concerns with asset protection, there really is no reason to title automobiles as tenancy by the entireties or otherwise jointly by spouses. Under the Florida Probate Code, a decedent’s automobiles are considered exempt assets with respect to probate, and pass automatically to the surviving spouse or, if none exists, to the decedent’s surviving children. (Fla. Stat., Section 732.402(2)(b)). Accordingly, there is no real reason to jointly title an automobile between spouses.
For those with teenage children, the problem is slightly different, and more difficult to deal with. When that minor child receives his or her driver’s license, someone, usually one of the parents, has signed a contract with the State of Florida agreeing to be completely responsible and assume all the liability for the acts of the child while operating a vehicle, regardless of who owns the vehicle. The question arises how to provide for the minor child’s insurance coverage? Should the child have his or her own insurance policy, or should they be insured on the parents’ policy.
Insuring the child through the parents’ policy is usually much more expensive because of the parents’ higher limits. Providing the child with his or her own policy with lower limits, from an asset protection perspective, is a mistake. In Florida, parents are liable for their children’s negligent operation of a vehicle, perhaps even after the child turns 18. If a child is driving under the direction of an adult parent, such as running errands for the parent, then the parent can be held liable for the negligent acts of the child even after age 18. If the child is involved in an accident with a separate lower limits policy, even if the vehicle is in his own name, and the child is running an errand for the parents, then all three people may be liable for the accident, and sued. Because the child owned the auto and had a separate insurance policy, his policy will answer first. If it has low limits, and the damages are significant, then the injured parties will pursue the parents for the amount of damages in excess of the child’s policy limits. For this reason, it may be preferable to have the children on the parents’ insurance policy, even after they are 18 if they are living at home with the parents, and even if it is more expensive.
What About Boats?
Different rules apply with respect to boats. (Fla. Stat., Section 327.32). The owner of a boat is not liable for the negligent operation by a non-owner, unless the owner is negligent in entrusting the boat or is physically on the boat when the injury or damage occurs (even if below deck and asleep). The spouse who normally drives the boat should be the owner.
Airplanes?
An airplane has been ruled to be a dangerous instrumentality by the courts. The owner of an airplane is deemed the agent for whomever he or she permits to pilot the plane. The owner is also vicariously liable for the action of the pilot and any injury caused by the negligent use of the airplane.
Conclusion
Proper titling of automobiles, boats and airplanes may be a significant issue regarding the protection of your assets from liability that can arise from the operation of a motor vehicle. For business owners the potential liability issues are much greater, and much more detailed planning may be required to ensure that motor vehicles are properly titled to minimize the likelihood that one accident could bankrupt the company. When dealing with the titling of ownership, you should always examine who will be operating the vehicle and how will it be used, whether personal or business use. If we can help you make sure you have minimized the potential liability for your household or business, please call us to schedule an appointment to discuss the matter.
Posted by Randy Coleman at 9/4/2008 10:05 PM 
Categories: Titling of Assets,Tenancy by the Entireties,Asset Protection
Tags: asset protection asset protection planning asset protection lawyer Jacksonville asset protection attorney titling of assets asset protection attorney
Categories: Titling of Assets,Tenancy by the Entireties,Asset Protection
Tags: asset protection asset protection planning asset protection lawyer Jacksonville asset protection attorney titling of assets asset protection attorney
Great article! Single best asset protection advice I've received.
Question: If car is re-titled to child, can child still be covered under parent's auto insurance policy without compromising asset protection of parent?
Thank you, MKB
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Hi Randy, thanks for the important information, was very much helpful for me
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Nice difference explained between automotive the asset and liability. Insurance can help to cover the vehicle liability.
Great information provided in this post.
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Good points, There are many possible ideas you can use to protect your assets. The laws of each countries are different, and you should find out what property can be taken from you under the laws of your particular state where you live. For example, several states have homestead laws, which protect all or part of your interest in your home from creditors.
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