Asset protection planning is often misunderstood by many people, especially small business owners. It is the small business owner, however, who stands to benefit in substantial ways from proper asset protection planning.
For business owners, asset protection involves protecting your personal wealth from liabilities that can arise from the operations of your business. Asset protection planning is NOT an after-the-fact planning strategy.
Let’s say one of your employees is driving a company car on company time, gets into an accident and badly injures someone. You are nervous that a huge lawsuit will be filed that could lead to an attack on your personal assets. This is not the time to start wondering if you have the right insurance or proper asset protection planning.
Small businesses have been sued for everything from accidents to discrimination to negligence. Proper asset protection planning is done when the seas are calm.
Most people don’t realize that a business liability can become a personal liability. Your home, rental income property, cash and investment accounts can all be exposed to a creditor attack that originates from the business.
The first step in proper asset protection planning is to educate yourself. Find out if there are any holes in your planning and the steps you can take to plug them up.
Here are three asset protection tips for small business owners:
Many business owners are unaware of contract law liabilities which can expose their personal assets to monetary damage claims. It’s important for any owner to understand the exceptions that exist in contract law so that the proper planning is put in place.
You should not own investment real estate in your own name or the name of your living trust. When you get sued, you could potentially lose everything, including your business. Insurance is a good first line of defense, but what if the judgement against you exceeds your insurance coverage? Holding real estate in an Limited Liability Company (LLC) is a good idea. A properly established LLC acts as a force-field around your property so that a liability at the property cannot seep over to your other assets.
This type of trust is different from your revocable living trust. The asset protection trust is an irrevocable trust that can be used to safeguard important assets such as stocks, bonds and cash. The best time to set this type of trust up is BEFORE even a whiff of a liability surfaces. You can still enjoy the assets in the trust.
If you would like a fresh look at your planning, don’t hesitate to reach out to take advantage of our complimentary consultation. Our experts will get one-on-one with you for some direct feedback on your planning.
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Director of Business Development0