Some Advanced Concepts You Should Be Aware Of
August 11, 2004
By Monish Datta
|
|
At it's most basic level, Asset Protection the process of
taking steps to minimize the risk of creditors or other claimants
from being able to reach your assets. This can include setting
up a different entity, such as an LLC, for each property,
business, etc. The following is a more indepth look at a few
Advanced Asset Protection concepts.
Planning for asset protection begins with the choice of the
correct business entity. A Limited Liability Company (LLC)-when
permitted by state law-is generally the most convenient and
flexible format.
|
The LLC avoids many of the tax problems and the maintenance expenses
associated with corporations. The law effectively insulates the
owners of the company from any liability produced by the business.
Personal assets are not subject to the risks of a business operated
within the LLC.
A corporation is generally a poor choice as a vehicle to protect
personal assets. It is clumsy, inefficient, and better methods are
available. If you transfer assets to a corporation in exchange for
stock, the creditor simply takes the stock certificates and becomes
the owner of those shares.
If he obtains more than 50 percent of the shares, the creditor
is then in control of the company-and your assets. We will see that
this result differs from the Family Limited Partnership or LLC arrangement
where the creditor cannot get the right to vote or manage the entity
and, therefore, cannot reach the assets held by the company.
Since the shares of stock of a corporation are reachable by judgment
creditors, a corporation will not provide a significant degree of
asset protection, in the event of a successful lawsuit against you
A "Trust" is essential in creating various strategies
for accomplishing asset protection. A trust is typically in the
form of a written trust agreement between the settlor , the person
creating the trust, and the trustee. Trusts are extremely flexible
in form and almost any asset protection and estate planning goal
can be accomplished by an attorney who is knowledgeable and experienced
in this field. Using creative trust strategies, the planning opportunities
for achieving tax savings and asset protection advantages are unlimited.
|
