Living in a litigious society makes people wonder how to protect precious assets without going bankrupt or homeless. There are many ways to protect yourself and your company from potentially specious suits designed to rob you of all you have.
Hold and Divide
A properly configured corporation or limited liability company (LLC) can protect your assets from lawsuits and claims. This is especially true for property, if it’s subdivided. For example, if you bought two properties, it’s smart to create a corporate entity for each. This move protects each property from any issues incurred by the others. As useful as this move is, it’s not a fool-proof asset protection move. Each corporation needs to keep accurate, proper, and separate documentation, including separate books and bank accounts. Failure to do this could be seen as a failure to separate the person from the corporate entity, putting assets at risk
No General Partnerships
Some people enter into a partnership with some general Articles of Incorporation thinking that it’s a cushion of asset protection. In some states, a general partnership like this is worse than if you had a single person business entity. Any partner who willingly or unwillingly incurs legal action puts your business and personal assets at risk. This could include automobile accidents with injuries or casualties, professional errors and omissions, or any misdeeds; any and all of your business and personal assets could be subject to seizure under the law.
Make Sure You’re Insured
Having a corporate entity doesn’t mean ultimate protection. You will need liability insurance such as property insurance that covers theft, fire and other hazards. Other types of insurance to consider are errors and omissions (E&O) for professionals, workers compensation and even automobile insurance.
Have a Trust
A trust is a property is held by one entity for the benefit of another. There are different types of trust that offer different levels of asset protection for many levels of income. A Self-Settle Asset Protection Trust is an estate planning tool that can also be called a spendthrift trust. It’s an irrevocable trust that creditors won’t have access to even if the beneficiary is sued. A Qualified Personal Residence Trust (QPRT) which places the principal or subsequent residence in a trust that is separate from the owner’s estate. This trust can have only one residence and while in the trust, it cannot be sold. Then there’s the offshore trust in a country that offers great asset protection benefits. The countries that offer these benefits won’t recognize the legal judgment of another country which provides an added layer of protection. Tax havens offering this level of coverage include Luxembourg, Singapore and the Cayman Islands. According to the International Consortium of Investigative Journalists, ICIJ, more than a few countries are going after tax evaders who have sheltered off-shore assets. It pays to make sure every detail is handled properly by someone who knows how.
Asset protection used to be a tool of the rich but with the right advisor, anyone can protect his or her personal assets in a way that is legally sound and financially safe.