Entrepreneurs who have purchased a large amount of personal property face the possibility that their property may be subject to creditors who wish to pay commercial liability. This is especially true for an entrepreneur who insures the debt of the business with his assets. While many business owners go through protecting their assets from business liabilities, there are some aspects of protecting assets that they may not have considered that could put their business at risk.
Keep your legacy intact.
Estate planning doesn't just mean "who gets what when they die." It is helping you reduce risk by protecting the next generation's legacy from lawsuits, divorce, or bad decisions. Good tax planning and asset protection strategies ensure that you have the resources you need for a comfortable retirement and that your family enjoys as much work as possible after you pass on.
Estate Tax Planning
Although a basic will transfers your assets to your loved ones, it is also important to implement strategies to avoid tax cuts on your assets. Federal tax laws (which can and may change) currently allow you to exempt a certain amount, individually or as a couple, but you can increase the amount of the exemption by:
Utilizing the unused portion of your spouse's inheritance tax exemption if it precedes you in the event of death.
Establishment of a credit shelter trust fund to preserve the death tax credit of a deceased person.
Successful families can be taxed even after taking advantage of available exemptions. A good asset planning team will help you reduce or eliminate the tax burden on your assets using proven and accepted strategies.
Asset Protection
Millions of lawsuits are filed in the United States each year. Many are frivolous or satisfied with sums that exceed one's actual liability. If you are a licensed or professional business owner, your assets may be at risk due to personal injury or negligence claims. A disgruntled former business partner may even try to "clean you out".
While you can be insured against these threats, it doesn't always provide adequate protection. A good tax professional will help you protect your property by recommending and setting up special trusts, business entities, and other legal arrangements. The strategies used vary depending on your situation, but the ultimate goal is to protect your assets effectively, legally, and ethically.
Use insurance to avoid litigation with creditors.
A legitimate asset protection planner will recommend that the business owner takes out the broadest liability insurance policy as one of the first employee strategies. They argue that the policy will act like misappropriation of personal property, as litigants are more apt to follow the deep pockets of an insurer and avoid the costs and time of litigation.
They can't get what you don't own.
One of the basic principles of asset protection planning is the transfer of assets to isolate the owner and maintain control. Many of the strategies discussed here serve precisely this purpose. One of the basic tools to achieve this is irrevocable trust. An irrevocable trust is an agreement whereby a trustee receives ownership of an asset, such as real estate or even a business. Once transferred, these assets no longer need to be included in the business owner's financial statement. It is important to transfer assets well in advance of your problems to avoid any contemplation of fraud.
Utilizing basic estate planning tools
A basic wealth planning tool offers the ultimate solution for couples where only one spouse is interested in the business. Each spouse benefits from an unlimited exemption in the transfer of assets between them. To maximize the exemption for all of their assets, couples can form a unified credit trust designed to hold the deceased spouse's assets. In the entrepreneur's case, the business interest can be held by him or her, while an equal amount of personal property is transferred to the portion of the trust to be held by the spouse.
Not all LLCs are alike.
LLCs have become a legitimate means of isolating the entrepreneur from the responsibilities of the business. Entrepreneurs have used LLCs for years to protect their business claims. However, should legal action be brought against an entrepreneur's interest in the LLC, they may not have the protection they thought.
Only a few states, such as Alaska and Nevada, allow the formation of an LLC that will effectively provide protection against a creditor who wishes to take over the ownership of the business owner's interest in the LLC.
State law provides that an LLC's interests are governed by the state in which the LLC was incorporated, regardless of where the company is located. If the state in which your LLC was formed does not provide the extra protection of individual interest within the LLC, you may want to consider, with your business attorney, a change of residence for your LLC.
Any asset planning and asset protection strategy should be carried out in consultation with a firm qualified in financial, tax and wealth protection experience, such as UNIFIRST FINANCIAL & TAX CONSULTANTS.
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