You’ve probably heard stories about business owners who had to give up all or part of their assets after losing a lawsuit. You don’t want the same situation to happen to you. An unexpected lawsuit can flip your life upside down if you haven’t taken any steps to protect your assets. It’s never too early to safeguard your assets. When creditors come knocking on your door or the court’s ruling is unfavorable to you, it might be too late. They can seize your property, cars, or other assets under your name if you didn’t execute an asset protection plan. Learn about why it matters to protect your assets.
Why Asset Protection is Important
An asset protection strategy decreases the risks of your personal and business assets from the claims of individuals like your creditors and former spouses. A well-crafted asset protection plan uses legal strategies to deter potential claims on your assets or prevent you from losing them after a court decision. Don’t wait to set up your asset protection plan. The earlier you get it ready, the higher your chances of protecting your assets.
Several options are available to protect your assets, including setting up trusts, partnerships, or other legal arrangements. Which method works best for you will depend on the type of assets you own and the individuals who are likely to pursue your assets.
Setting Up Corporations to Protect Your Assets
Many solutions to protect assets have been created throughout the years. One way is to form a corporation. The corporation’s legal ownership is vested in its shareholders, as indicated by shares of stock. Every shareholder is able to elect a board of directors to manage the corporation. The board then elects other roles such as the president or treasurer who take care of the daily business activities. Most states allow a single person to act as a sole director
Different types of corporations can be set up, including limited liability companies, S corporations, or C corporations. Why are corporations an attractive strategy for asset protection? Corporate principals are not accounted for any breaches of contract, injuries to third parties, or corporate debts caused by employees or agents of the corporation. The creditor can only make a claim on the corporate assets, meaning your personal assets are safe.
However, bear in mind a Corporation can protect assets but generally needs to be used in conjunction with other asset protection tools to actually hold the assets such as an LLC, or Limited Partnership. Corporations holding significant assets on their own can trigger a taxable event. Make sure you discuss this strategy with an expert before transferring or using assets with a Corporation so you avoid unnecessary taxes.
Setting Up Trusts to Protect Your Assets
Another way to protect your assets is to set up a trust. This is an agreement between the person who set up the trust (the grantor) and the individual responsible for handling the assets of the trust (the trustee). The trustee is responsible for managing the assets in the trust to benefit the beneficiary. When you create an irrevocable trust, you cannot dissolve or amend it. That’s why it’s a strong asset protection too because you can’t be sued for something you don’t control or own.
Be careful when using a Trust to protect assets. Generally a Trust is touted everywhere on the internet as the ultimate asset protection tool. Many new Asset Protection Trusts are created here and there and claim to be the latest and greatest tool. Be careful because when it comes down to the actual case law or court history of a Trust the basics are all the same in the eyes of the law. You don’t want to be a “guinea pig” and test out the strength of something new and untested.
Also, tread carefully when using an Irrevocable Trust. While it is true that an Irrevocable Trust can provide protection, remember that the protection comes from being Irrevocable or unchangeable. Making something unchangeable sounds good but as we all know life changes over time and you might not really want something that is unchangeable in the future. There are other tools that can provide similar protections that are changeable in the future.
Limited Liability Companies and Limited Partnerships
LLCs and LPs are great tools for protecting assets due to charging order protection. These tools both have charging order protections in varying degrees in each state. It is critical that you look at the actual court history and strength provided for each of these entities in the state where you file the entity. These tools are generally easy to set up, maintain and change as your wealth and desires change over the years.Developing and executing a thorough asset-protection strategy encompasses nearly all aspects of your business. This allows your assets to be protected in legal ways. Consider engaging an asset protection professional and learn how to protect your wealth.
