Tax Tips
Asset Protection Should Be All-Encompassing - October 2008
Richard Scrivanich - Partner
In today's litigious society, many people with substantial means are concerned about protecting their assets. For instance, a lawsuit of questionable merit can deplete your net worth.
Getting personal
Your prime concern should be protecting key personal assets from creditors. You should have ample liability protection in your homeowner's and auto insurance policies, as well as an excess liability ("umbrella") policy that will pay out in the case of large awards.
Retirement plans enjoy considerable creditor protection under federal and some state laws; therefore, maximizing contributions to retirement plans is excellent asset protection, as well as tax deferral strategy.
In addition, some states provide creditor protection to life insurance policies and annuities. In those circumstances, investing through variable annuities and variable life insurance policies may be prudent.
Our office can help you determine which assets offer the best creditor protection, under state law.
Business barricades
Too often business owners and professionals devote a great deal of effort to protecting personal assets, but not enough effort in protecting business assets. The loss of valuable business assets can diminish your future income; as a result, proper insurance is vital. Our office can go over your property/casualty coverage to see that it's complete.
Running your business or professional practice as a corporation, limited liability company (LLC), or limited liability partnership (LLP) is recommended. Although these structures are not absolutely sheltered, they do provide considerable protection for personal assets from business-related claims.
Divide and conquer
Comprehensive asset protection might call for having separate entities own different assets of your business. Once LLC might hold the accounts receivable, while another LLC might own the equipment, and yet another could own intellectual property, another real estate, and another owns the vehicles. Your company could lease or license those assets from various LLCs in order to operate.
With this strategy, problems in one area may not expose all business assets. For example, suppose a visitor is injured at your company's warehouse. A properly structured asset protection plan could limit exposure to the warehouse; however, if that warehouse is heavily mortgaged, there may be little incentive to pursue a huge claim.
One of the purposes of an asset protection plan is to discourage claimants. If barriers are in place, they are more likely to settle on reasonable terms.
Cash concerns
Another business-related asset protection strategy could be the use of accounts receivable financing. A company or professional practice might get a loan from a third party, using the accounts receivable as collateral. A properly crafted security agreement for the loan can shield the receivables from creditors, and protect vital cash flow.
No matter which strategy (or strategies) you choose, it's better to act sooner than later. Any transaction entered into with real or potential creditors identified, may be disregarded in court in the case of a challenge.
If you have any questions regarding asset protection or any other tax matter, please feel free to give me a call at (562) 698-9891.
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Some of the articles included here were written in a prior
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the older articles may not still be valid. Any dollar thresholds indicated
relate only to the year for which the article was written and could be different
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acting on any of the information provided. If you have any questions,
please give us a call at (562) 698-9891.
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