Asset protection planning involves making sound decisions today to protect yourself, your business, and your hard-earned assets from future loss due to unexpected serious illness or accident, lawsuits, creditors or bankruptcies. This type of legal planning is especially prudent for professionals and business owners, whose personal assets could be at risk due the nature of their employment.
Statistically, we all know that the number of divorces, lawsuits and bankruptcies is staggering. While no one believes lightning will strike them, wealth created through a lifetime of work, saving and investing can be lost overnight if these forms of man-made lightning do strike. To protect your assets from such disaster, proper risk management strategies should be given careful consideration. These strategies include exempting your assets from the claims of creditors, limiting your liability through legal entities, and transferring your risk through insurance. In some cases, Irrevocable Asset Protection Trusts are a solid choice.
State and federal laws exempt some of your assets from the claims of creditors. Once you have identified the protected asset classes available to you under applicable law, it may be prudent to maximize your protection by converting non-exempt assets into exempt assets.
Many entrepreneurs operate their businesses as sole proprietors rather than through a legal entity, such as a Corporation or a Limited Liability Company (LLC). Whether a business is home-based or in the Fortune 500, business owners are attracted by the informality of sole proprietorship. They also do not want to incur legal fees to create and maintain a legal entity. However, in addition to other advantages, conducting business through a legal entity may offer substantial risk management benefits as well as deductions for tax purposes that are not available to proprietorships.
While lawsuits brought against a sole proprietorship are really lawsuits against the owner's personal assets, lawsuits against a properly created and maintained legal entity are really lawsuits against the entity's assets. Nevertheless, the selection of an appropriate legal entity is critical for managing your risk and keeping your personal assets separate and secure from potential suits.
When was the last time you reviewed the details of your liability insurance program with your insurance professionals? Are your policies current? Are the coverage limits adequate and are the deductibles reasonable? Have you scrutinized the policies for loopholes? Remember: the fundamental philosophy of any insurance coverage is to pay a premium you can afford to transfer a risk you cannot afford. Take time to understand both the risks you have retained and the risks you have transferred.
Sometimes, an Irrevocable Asset Protection Trust makes sense. However, it should be created only before any creditor storm clouds arise on the horizon, or it can be set aside as a sham. Further, it should only contain assets that you do not need on a day to day basis. We can discuss the specific parameters, which vary from person to person, on an individual basis to ensure your business assets are protected.
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