When you own a business, your assets are essential to your company. Chances are, you are hoping and intending to keep the business in the family for a long time. If something goes wrong, you can very well lose your assets to a creditor. An asset protection plan can help protect your assets and preserve them for generations to come. However, most personally or family-owned businesses do not have these protections in place. Here is some more information about asset protection plans and why you absolutely need one for your business in order to protect the assets that have taken years to accumulate.
Many different classes of people may have access to your assets based on what may happen in the future. For example, you could be a defendant in a lawsuit and be facing a sizable verdict. Alternatively, you could go through a divorce, and then your assets will be at risk. Any other creditor or judgment could potentially attach your business assets to satisfy a debt. While you certainly want to plan effectively to keep your estate out of probate, you also need to be proactive about guarding yourself to help deal with potential lawsuits or other types of events that could jeopardize your assets.
With that in mind, you need to find a lawful way to protect your assets from these occurrences. Working with an asset protection attorney, you can devise an asset protection plan. There are several different approaches that can form the basis of an asset protection plan. Each of these approaches moves assets from places where your creditors can reach them to structures or assets that your creditors cannot touch.
Limited Liability Corporation
This is a corporate form that shields the business’ owner from personal liability for the debts of the business. The LLC becomes the business and what is liable for the debts. Neither the owners nor the managers are responsible for the debts. As the owner, you will only be liable if you personally guarantee the debts of the LLC. However, the protection afforded by an LLC is not absolute. For example, if you are negligent or commit fraud while operating or working for an LLC, you could be found personally liable for the action. Putting your asset in an LLC and combining it with LLC insurance can give an extra level of protection.
A limited partnership essentially collectivizes business assets. They act to protect the assets because if one member of the partnership is found liable for something, no asset sale can be forced to be sold. When you put your assets into a limited partnership, you surrender the legal ownership of them to the partnership. You can still make money on your assets because you can receive payments from the partnership, but the underlying assets are not individual property. The beneficial thing about a limited partnership is that you can still maintain effective control over the assets by becoming a general partner. This entitles you to make decisions regarding the property.
Asset Protection Trust
In many circumstances, you can place your business assets in an asset protection trust. This will protect the assets from creditors who are trying to reach the money. The important thing that you must remember about asset protection trusts is that they are irrevocable. That means that once you establish the trust and place the money in there, it is permanent. However, making the trust irrevocable is the only way to keep creditors from having access to the assets. By placing the asset in the hands of the trustee and surrendering your decision-making power, the asset is no longer considered yours. A foreign asset protection trust can essentially take your assets offshore and subject them to foreign law. Some foreign laws are very conducive to this type of vehicle.
In designing your asset protection plan, there are additional options and measures that you can take that go beyond the above listed steps. Consult with an asset protection attorney to find out how to put these ideas into action or any other measures that you can take to protect your business’ assets from lawsuits or any other unforeseen occurrences.
Blake Harris is the Managing Attorney at Mile High Estate Planning where he assists clients with Wills and Trusts, Asset Protection, and Probate. Blake has extensive knowledge and experience helping families plan for and manage the transfer of their assets.