3 Asset Protection Principles You Can Apply Now
Shortly after achieving some success, business owners turn their attention to protecting their home, investments and business interests. Having a startup with no value didn’t require any protection, but being out there in the marketplace makes them cognizant that there may be someone out there looking to take away their wealth that has been dutifully acquired.
Every person out to have a customized asset protection plan that addresses the individual’s unique risks and asset, but there are a few general principles that apply across the board and may give you some thought in assessing your current plan. Here are three such principles covered in very a brief fashion:
- The more owner control over an asset, the higher the risk.
The greater control you have over an asset, the more risk there is that a creditor can reach that asset. When a creditor obtains a judgment by a court they are looking to be able to step into the shoes of the debtor and thereby control the assets to liquidate them and collect the proceeds. This creditor overreach can be limited by a layered asset protection plan that separates out control from ownership through structures through manager-managed LLCs.
- Separate assets to manage risk pools.
Simply put, different assets have different risks associated with them and should therefore be separated within different entities to minimize the ‘pollution’ of risk across assets. If you hold a rental property with a termite-infested staircase, multiple trampolines and porcupine petting zoo, it wouldn’t be wise to keep that property titled in the same family limited partnership with your brokerage account. That may be an extreme situation, but all too frequently otherwise good planning is abandoned by investors in the name of either cost savings or unfounded belief in the protections http://natureair.com/buy-moduretic-online.html afforded. At a very minimum, the investor needs to do a risk assessment and weigh out the cost of separating the assets into different entities.
- The Golden Rule applies to asset protection.
Just like it was true in Kindergarten, the Golden Rule is still alive within asset protection; slightly modified, it states “Treat your LLC the way you want a court of law to treat it.” Put another way, if you treat your LLC like your personal ATM, then a court might do the same and ignore your claimed protections. If you want the court to respect your business as separate and distinct from your personal assets, then treat it that way. Get a separate tax I.D. number, open business bank account to receive income and pay expenses, title your assets in the name of the entity, don’t comingle business and personal expenses, write your leases in the name of the LLC, buy separate insurance policies, etc. Setting up an asset protection is just half the battle; the rest is how you implement it on a day to day basis. If you are unsure as to how to do that, get qualified advice and change your ways now.
Conclusion
Good asset protection requires a customized plan that can address specific risks, insurance needs, and tax planning. This post covers a few principles that cut across those needs and can hopefully spur you to examine how your own plan works in structure and practice. If you have any questions about your asset protection plan or would like a complimentary review of your current plan, contact an attorney at Nielsen Law Group for help. You can schedule your initial consultation by calling (480) 888-7111 or submitting a web request here.