For business owners and professionals, legal liability is a major concern. By creating an asset protection plan, business owners and other professionals can restructure their assets to limit their risk of loss in the event of a lawsuit or other event.
An asset protection plan uses legal means to remove assets from the reach of creditors without the risk of perjury, fraud or tax evasion. While anyone can employ an asset protection plan, they make the most sense for those who have significant assets and also those who are the likely target of litigation. For example, the following are situations in which an asset protection plan may be especially useful:
- Those who work in a profession with a high risk of liability, such as doctors, lawyers, financial advisors, real estate developers and landlords;
- Those who have already accumulated, or are about to inherit, a significant amount of wealth;
- Those whose home value has decreased below the mortgage amount;
- Those with excessive credit card debt;
- Family-business owners concerned about the ongoing viability of the operation; and
- Those who may face a lawsuit or tax liability in the future.
Of course, there are other situations in which an asset protection plan may be valuable.
Common Asset-Protection Tools
There are several tools that estate planning attorneys use to create a comprehensive asset-protection plan. A few of the more common tools include:
- Insurance – Insurance is perhaps the most common asset-protection tool, as the right insurance policies can provide ample coverage in the event of a claim. Aside from home, auto, and professional insurance, business owners may also consider life insurance, umbrella insurance, and business interruption insurance.
- Re-titling of assets – Changing the legal title of assets out of a business owner’s name will often remove those assets from the reach of creditors. However, it is important to consider the effect that the re-titling of assets will have on the business owner’s estate plan, as well as the tax consequences of such a transfer.
- Retirement plans – Retirement plans are generally beyond the reach of creditors. However, understanding the limits of this protection is crucial.
- Use of business entities – Business entities can be used to reduce or eliminate risk. Certain entities, such as corporations, limited liability corporations and limited liability partnerships offer significant protection. For business owners with more complex operations, creating a separate business entity for each purpose will provide the most protection.
One of the most important things to keep in mind about an asset protection plan is that it is often too late to begin creating a plan once it is needed. Asset-protection principles assume that there is no litigation or tax liability already pending. If there is, then most asset-protection strategies may run afoul of the law. Thus, engaging in the planning process early, and well in advance of the need for protection, is key.
Do You Have an Asset Protection Plan in Place?
At the New York estate planning law firm, Littman Krooks, LLP, we have over 30 years of experience helping business owners effectively plan for the future, whatever it may hold. We understand the hard work and dedication that goes into making a business succeed, and vow to do everything we can to help you protect what you have created. We pride ourselves in providing an exceptional level of service to business owners of varying net worth, helping our clients ensure that their personal assets are not unnecessarily at risk. To learn more about how our dedicated team of attorneys can assist your family with its unique needs, call 914-684-2100 to schedule a no-obligation consultation today.