Asset Protection Tips
Asset Protection Tips In Today’s Litigious World
All of us are concerned about that unexpected claim. Here are some things you can do
1. Liability Insurance is your first line of defense, buy every type and dollar you can afford, including umbrella policies. The value of the insurance provided defense is often much more important to you than the indemnity.
2. Pay all your taxes, especially employment taxes. Don’t try to characterize true employees as independent contractors. The I.R.S. has the best collectors and onerous penalties.
3. Use limited liability entities such as corporations, LLCs and limited partnerships as liability firewalls. Divide and legally segregate your personal, investment & business assets (and liabilities). But a single LLC owning several investment assets permits an exposure from one to jeopardize the equity in the others.
4. Use multiple entity planning. Most creditors do not have the knowledge, resources, and time to penetrate multiple entity structures. While the cost and effort to establish and maintain multiple entities is greater, the protection afforded is significantly increased. If you alone own an entity, run it, and control it, creditors may argue that it is still YOU. Because of the lack of required formalities, a single owner LLC may be pierced.
5. Make the extra effort to respect the entities and arrangements you create. Sign contracts with correct titles. Use the appropriate checks and letterhead. Make your actions consistent with your documents and with normal third party practices. Record the deeds. Pay the rent or interest due, when scheduled; at least square things up annually.
6. Get professional legal, accounting and bookkeeping help to organize your assets and maintain the legal entities formalities including filing tax returns, meeting minutes, separate bank accounts, promissory notes, sale and loan agreements, etc.
7. Pay attention to what your business co-owners do in the name of the business. Don’t let your partner or co-owner own “her” vehicle in your jointly owned business, particularly if it owns valuable assets. Vehicles are a source of significant liability. If an owner or her spouse injures someone with a company-owned car, she has created a "bridge" not only to your business and all it owns, but to your interest in it as well. Take a vehicle allowance instead of trading a tax deduction for extra liability.
8. If you have employees, put professional employment manuals, policies and dispute resolution agreements in place. A small investment with an employment lawyer will cover your business and family for years. You are significantly more likely to be sued by an employee than by anyone else.
9. Be generous, completed gifts (but not fraudulent transfers in the face of known liabilities) will be enjoyed by other people you select, not those who sue you. And friends and relatives who received your gifts may one day loan you money or help you out. But in undertaking asset protection, don’t make yourself so illiquid you cannot operate. Don’t make yourself insolvent.
10. If you are uncomfortable with large gifts, consider “freezing” your assets. For example, sell property to your children for a long term note and rent it back at fair rental value. Let them have the future appreciation. Tax consequences can be controlled to a large extent, if you plan carefully.
11. Be nice to everyone as a rule. During difficult economic times people are much more likely to take legal action, whether justified or not. Your bedside manner will play a role in their emotional decision to sue you. Our culture has changed. We are living in a world of “blame the other guy.” And litigation is expensive both cost wise and from an emotional point of view.
12. Do Something TODAY. Every day that passes makes transfers and actions you take to protect your assets stronger and harder to argue with. Trying to protect yourself after you have a liability event is much more difficult and may be ineffective. Be less of a target. Own less or nothing. You don't need to keep assets in your own name to use, control and enjoy them. Make use of trusts, corporate shells and family members to transfer title to assets away from you.