One of our most frequent inquiries at the Legal Services Plan is how a pilot can reduce their exposure should an accident occur. Many pilots believe that a limited liability company will shield them personally, but that is not necessarily true, especially if they were serving as pilot in command. While an LLC may not offer the protection many assume it does, there are other tools that may help.
First, good insurance is one means of protecting your assets. We hear anecdotally that most claims arising from aviation accidents settle within the limits of the insurance policy. While there is always the risk of an excess judgment that is awarded after a lawsuit, good insurance is a crucial part of any asset protection strategy.
Another option is an irrevocable trust. An irrevocable trust does not negate liability, but it may, in a way, make you judgment-proof. The basic idea is this: you give title to your assets to a trustee who manages those assets in accordance with the trust document. Because you no longer “own” the assets—the trust does—when a judgment creditor comes to you, you can show them empty pockets and truthfully claim you own nothing. Assets held by the trustee may be beyond the reach of the creditors, although any amounts paid to you under the terms of the trust may be attachable when that money reaches you.
There are downsides to irrevocable trusts, of course. For one, there are tax considerations and fees associated with the establishment and maintenance of the trust. But the principal downside is the lack of control over your assets. The idea is that you give up title and control of the assets for good. While you provide instructions for the trustee to follow, irrevocable trusts are largely, by definition, unable to be revoked, and the terms are often difficult to change.
Trusts are a creature of state law. So, you will need to speak with a local attorney to determine whether it is right for your circumstances.
In truth, defending your assets from creditors arising from aviation accidents is not all that different from defending them from creditors arising from other liabilities. First, be careful and thoughtful in your conduct; you don’t have to worry about tort judgment creditors if you never commit torts in the first place. Second, procure good insurance with high limits that cover the risks you are concerned about and comply with those policies’ terms imposed. And lastly, work with an estate attorney on an asset protection plan, which may include an irrevocable trust.
